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Jim Rogers Sees Devastating Stagflation, Would Quit If He Was A Bond Portfolio Manager
Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.
On whether the US is becoming a deflationary Japanese-style basket case:
"A difference is when Japan did that they were the largest creditor nation in the world, America is the largest debtor nation - not just in the world - but in the history of the world and the U.S. dollar has been - and is the world's reserve currency. So there are some factors that might not keep the interest rate down in the U.S.
Ok, so no deflation. What then?
The U.S. economy is likely to experience a period of stagflation worse than the 1970s, which would cause bond yields to spike, commodity bull Jim Rogers told CNBC on Friday in Singapore. Rogers said governments were lying about the inflation problem and the recent rally in Treasurys was a bubble.
"As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds - somewhere along the line we get to the point when (bond prices) go down."
Between 1974 and 1978 average inflation in the U.S. was at 8 percent, while unemployment hit a peak of 9 percent in May 1975. Currently, unemployment is at 9.1 percent while CPI is at 3.8 percent.
"This time is never different" and why the mother of all stagflations is coming soon:
Rogers believes inflation will get much worse this time because, he
said, in the 1970s only the Fed was printing money, whereas now many
global central banks have been easing monetary policy.
So yes: he will be right eventually... But what about in the interim?
"Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse."
For now though Rogers is playing it safe and avoiding bonds. Instead, he's betting on stagflation by being long commodities and currencies (such as the Chinese yuan) and shorting stocks.
Rogers even has some career advice for up and coming bond mavens:
"I wouldn't advise anybody to buy bonds, I would advise you to sell bonds," he said. "If I were a bond portfolio manager, I would get another job."
Ok, well, make that anti advice.
As to where the money will be made...
"In the 70s you didn't make much money in stocks, you made fortunes owning commodities," Rogers added.
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Best thing about shorting treasuries right now is the interest cost is almost nothing.
Rogers is absolutely right that this will lead to stagflation. And he is right that it is difficult to time it, because the Fed has not yet ran out of bullets to keep rates low. But eventually, printing will fail and interest rates will rise.
My take is that we will see deflationary pressures until the dollar is devalued, then inflation will hit over night. It will be stunning to see prices rise 30% in one day for nearly everything. That will be the onset of stagflation. I don't anticipate this happening until 2013 or 2014.
The insurance against this calamity is precious metals. Gold and silver are on sale at today's prices and are likely to go lower when the stock market crashes. Prepare for the sale. One way to do that is to buy FAZ options with expirations in Jan 2013 or Jan 2014. The leverage on FAZ options is amazing and if we get a crash, which is very likely, they will explode. Of course, Bernanke may be able to hold of the crash longer than these options last. So there is a degree of risk.
Another thing to use as a hedge is gold and silver stocks. They are cheap today and likely to get cheaper when the crash hits. However, once the price of gold and silver take off, so wil these stocks.
www.goldsilverdata.com
Don't try to time it. An unforeseen event may make it happen tomorrow, next week or next month. The FED is not the only player in this, and with the prospects of a China hard landing and a trade war in the beginning, events may unfold pretty rapidly. If you have positively identified the trend of this situation, position yourself accordingly, and treat every interim fluctuation as volatility. Otherwise you may wake up one day and realize that you have already been locked out of the game.
+1 "Newager23. Jim Rogers is often "early" and usually correct. I'll put my money with the correct part.
excellent article. we are starting to see the slow crushing of marginal returns on equity at the big box retail level. that will only get worse and begin to affect the entire value add chain, including industrials and middle market suppliers. the only safe zone will be at the point of raw material production because governments will spend their future to preserve basic access to stuff - energy, food and things governments need for self-preservation (like big guns and planes and ships). what this means is the miners are the new masters. pick them correctly because we will see more nationalization of natural resources but prices will remain solidly in a secular bull market. as a USD-based investor, you'll get the double whammy of being highly negatively correlated to the USD.
Weimar America will come true if you still have any doubts. When that day comes, Joe Six-packs will turn to their own Adolf Hitler who is in Red, White and Blue and holding the Bible. Together they will demand much bigger scale Holocaust that the OWSers never asked back in 2011.
I would trade 5 Mark Faber for 1 Jim Rogers any day no matter how 'more machine now than man' the twisted and evil franken-markets become!
We just need to wage wars and everything will be fine for the sheeples to distract them. As though they understand anything at all i the big Question.
There are a few countries USA has not waged a war:
Fiji Islands
Falkland Islands
Nepal
Congo
Sri Lanka
and many more i am si\ure. If this keeps up, Obama will be back in the office. Forget about 15 Trillion deficit, more like 22 to 25 trillion. Then again who is keeping tab.
Uncle Sam needs to take warZ to Russia and China. That's the way out of the Greater Depression if you ask Paul Krugman. But that requires #OccupyIran first.
http://farm7.static.flickr.com/6155/6235120539_14874f90bf_b.jpg
Maybe this might work better
http://www.victoriassecret.com/pink/army
No Friday nite data dump?
Here is some Friday night data.
Friday bank closing = 4
Cost to the FDIC (us) $220,000,000
If things are indeed better, why are banks still closing?
Tonights Trivia:
This data is from the CBO.
From the CBO.GOV
1970 USA population.................203,323,175
1970 USA GDP...........................$1,013,000,000,000
2009 USA population.................305,745,538
2009 USA GDP...........................$14,326,000,000,000
The USA deficit went from 3 billion in 1970 to $1.4 trillion in 2009
Debt held by the public went from 283 billion in 1970 to $7.5 trillion in 2009
These numbers seem out of line with the population growth for this time frame.
Is this an aberration?
In 1970 203 million people produced 1 trillion in GDP.
In 2009 305 million people produced 14 trillion in GDP.
My question is this, how did the addition of 100 million people to the population in 2009 produce the additional 13 trillion in GDP?
When 200 Million people could only garner 1 trillion in 1970.
Are these "constant dollars"?
Brown, the phrase constant dollars purports no relationship with inflation/deflation, something I can not grasp, or trust to the benevolence of the BLS.
http://en.wikipedia.org/wiki/File:US_Consumer_Price_Index_Graph.svg
But what happened in 1971 that was a "shock"?
http://www.aier.org/research/briefs/1826-the-long-goodbye-the-declining-purchasing-power-of-the-dollar
$10,000 in 1970 was in "constant dollars" $55,000 in 2009 approximately a 450% increase,
but an increase from 1 trillion to 14 trillion is what %??????
http://en.wikipedia.org/wiki/File:US_Consumer_Price_Index_Graph.svg
Mexicans are damn hard workers
Bernanke in zen mode: "Be the invisible hand"
We also have had money coming out of Europe and China (all BRICs). Some of that liquidity is flowing into U.S. stocks. These inflows hitting oversold conditions less than three weeks ago supports the impressive rally.
If this persists beyond about S&P 1260, look for something more contrived and political. Volume in relation to the size of the run-up suggests leverage or cloaked transactions.
It is not likely the Republicans will simply let Bernanke ramp the market until the election, though Repubs could go along temporarily now that the masses have indicated they do not want to completely relinquish their citizenship.
Besides, with insider imunity, it was nice to know to be long for the last 125 S&P points.
Gosh....everyone, my M.O. is such more more simple, the Occam's Razor: you don't load up again on anything until QE3 comes, until then it's gonna be a lot of noise. Cash for future opportunies and PM's for safety in case China starts selling all their tsy's today.
It's just that fucking easy. Europe is just a possible short term opportunity to go short....but you can't do that until after the Merkel/Sarkozy plans are finally out. Only then will all the lambs understand there is gonnna be pain coming.
Everyone should have a lot of cash (physical FRNs) and a lot of PMs for the exact reasons you wrote. Until QE3 arrives, prices (assets) will go DOWN, so buy them for a better price later. Ans Buzzsaw pointed out upthread, the opportunity cost os holding FRNs is almost zero.
PMs will likely go up much higher. But, gold is the best hedge against irresponsible .govs and Naksters.
Well done Belarus.
There is a reason why Rogers is in Singapore, teaching his children how to speak Mandarin, and investing in Asian agricultural real estate.
Because he likes the hours they keep at the SMX?
I doubt it is because he is into Asian chicks.
I was iN Singapore forever 6 years and thought that Singapore is the greatest place. Yes it is. Would move back in heartbeat.
From a dealer:
Silver Eagle Sales in September Soar to 4,460,500 Coins Sold - Second Highest Monthly Total Ever
UPDATE 2-US budget gap widens, tops $1 trln for 3rd year
http://www.reuters.com/article/2011/10/14/usa-economy-budget-idUSN1E79D1...
I feel good that by the time Obma leaves office USA will be around 16 to 17 trillion in debt. Feels warm and cory does it not?
O got to go, American Idol Reruns.
they will print money and give it to themselves
till the money no longer works. then they will tell
you to send your children to die to protect and
disguise their theft and stealing. simple.
they pray the destruction and paid off writers of
history will be able to spin a yarn that captivates the
youth of tomorrow. in confusion they create modern myth.
you dream and hope they don't kill you as long as you
have faith in your betters. he, he, fucking he !
and maybe you can make some "money" on the deal?
agitate for the truth or die!
I don't know what all this complaining is about?
Keynesianism worked just fine until recently.
Just because it is having a little bad patch....
Sheesh....
Keynes...worked well? Sure, if you consider that the implementation of his General Theory completely turned economic principles upside-down. A world where, hard work, productivity and savings are not considered critical to the economic processes, where the ideal of full employment is not only the most desirable element, but is considered obtainable through government intervention into the markets. Of course, we know that is not true, it never has been except through forced labor, the market simply doesn’t function in that Keynesian dreamland.
In a real economy, one that functions according to principles that have been observed through time, production is much more vital than consumption, yet Keynes thought otherwise, placing the emphasis on consumption. Under normal market conditions, consumption will always be there because of human desire for products, The Central Banks artificial creation of demand in the economy by manipulating rates of interest and the money supply, creating the boom and bust cycle that has been so prevalent since Keynesian thought took hold of governments. Today we are witnessing the outcome of the creation of such distortions.
Additionally, since the Keynes ideal of a flexible money supply, this government, as well as other which were forced to follow suit, have ventured into a most dangerous arena, the arena of total fiat money substitutes. While not perfect, the classical gold standard provided a much more stable environment for the economy to flourish and also restrained governments from the wholesale robbery and looting of the country through massive fiat monetary inflation. Yeah, Keynes has worked well.
While even common sense would dictate that government should attempt to maintain a high degree of fiscal responsibility, that is obviously not seen as important under the Keynesian mindset, at least not as it has been interpreted by modern governments.
Yep, Keynesian theory has really worked well for us all. One of Keynes’ friends once said that Keynesian theory was intended to create problems that will require more and more government intervention. In other words, it would create problems that the government would have to solve, the problem is that those solutions eventually become problematic requiring yet more solutions, which become problems requiring yet more government solutions. Actually, Keynesian theory has never worked well, if it had then we would not be experiencing the results of such a hairball theory in action.
Keynes assumed that you were running surplussed during the good days. We don't have Keynesianism today, we have Bullshitism.
Fuck goddam shitty rugby referees.... i do hate them.
anyway, where was i?
The teachings of JM Keynes were perverted by politicians seeking to expand welfare programmes and maximise employment. Keynes did preach fiscal expansion to combat downturns, but he also warned of the need to balance the budget over the course of the cycle,
only Australia still bothers with that.
After the end of Bretton Woods, governments and the private sector began a long buttmunching orgy of borrowing, spending the wealth of future generations to bolster living standards.
in the name of keynes but the bits they wanted you to know.
that decision today where France won on red card was a bleeding travesty of sporting justice. A yellow card was the route and ten minute sin bin. NOT red card. Wales deserved to win against a cowered and play safe France.
And, you're spot on, on Keynes bashing in USA! I think it was 'cos he was also an aristocratic queer...some people hate mango pickle packaged like strawberry jam.
that does it. i am moving to singapore. i guess i have to leave my chewing tobacco at home though......
and your guns....
Fuck Singapore. They are China's bitch. One day that may not work out so well.
what abou the Fed continuing to expand its balance sheet? legislating long term rates, or even legislating pension funds are "required" to own treasuries.
the end game for treasuries is far off I wouldnt hold my breath, the Bernanke and the governament have many tools left, not to mention the luxury of being the reserve currency.
and as far as printing goes, did the Fed not simply change term structure of the banks through QE? because that cash never made it into the system through any kind of lending at the end of the day.
dorsum nudum fero tui sceleris.
Eventually we'll arrive at the tipping point. If the Fed continues to Buy America the tipping point will be total system failure (via hyper-inflation).
All that's happened up to now is that, much like the foreclosure game, in which homes are in foreclosure but not really noted as such, banks are in foreclosure but we're not noting them as such (stress tests say things are fine). The way "out" is to make their virtual numbers look better, hence the pumping of new binary bits. Their system relies on an orderly banking system, anyone thinking that it could be allowed to collapse just doesn't understand how these folks maintain power. SLOWLY banks will be allowed to die as a result of "a lack of business" (because they can't actually lend anything because the risks are way high), but only at a rate that allows the rats to jump off the sinking ship. This slow death march, which I doubt will run any intended course, is what they want. It's the system correcting itself they'll say. Meanwhile this drags down real people. The "economy" still shows declining growth (negative in real terms, though we won't talk about negative growth). They're still at the helm, struggling away to keep their game going, the growth game (now left as only illusory).
I'd say that IT IS working, but these are only the battles being won, the war itself can never be won (since it's based on perpetual growth on a finite planet- NO popular economics model acts/expects any differently, in which case there's NO "solution" that we can expect). I'd also say that timing isn't in their control either: saying such would require that they really do have the ability to control all the markets; I'm just not thinking that this is realistic.
Rogers likes Singapore because they practice Canesianism.
Anyone else get a good laugh out of the CNBC comments on Rogers interview?
Global mass protest Oct 15. Occupy Wallstreet in Iceland, Africa, Asia , Austalia, all over Europe, USA and S-America.
http://15october.net/
The one percent is looking smaller every day.
Iceland? Iceland was one of the few, if not the only country to NOT bail out their banks.
However, I understand that some of the big European banks are trying to sue the Icelandic government for not bailing out their banks.
If it wasn't for deflationists this Ponzi would have already crashed. The Ponzi will not fail until market participants forget the idea that a deflationary death spiral is right around the corner,
The idea that deflation is around the corner gives credability to the money printers. Once the reality that technocratic central bankers and governments are keeping demand at maximum hits then it's the beginning of the end of the fiat Ponzi -- not before.
notwithstanding that 'on a long enough timeline (what? 20 years tops in this case ) the survival rate for everyone drops to zero'
I'm sick and tired of these supposed technology breakthroughs.
What improvement to 'if, then. or else' has occurred? F'ing new chips are nothing but graphics, suitable for the 'Dancing With The Stars' types.
Hey! A meaningful comment from you! (logic doesn't change, and technology is ultimately useless) Good job!
I don't pay much attention to technology. It's akin to the apple in the Garden of Eden... Figure it as the master's leash.
I pay a vast amount of attention to technology --- but next to none to electronic gadgetry.
(When did the vastly non-specific word "technology" come to be appropriated by "computer technology", anyway? I hate that use of the word!)
I long ago noticed that the extent to which a person is obsessed with electronic gadgetry is almost invariably directly proportional to their overall conformity and acceptance of everything status-quo.
We need wake ourselves, then disengage, the rest will work itself out The Infomocracy Dilemma: Revolution or Disengagment?
Sorry, still missed the fundamentals :-(
Health care is an issue rooted in environmental conditions and food, both of which are proven to be the greatest causes of our "need" for "sick care."
While Israel was most definitely a key player in the reason for the attack against Iraq, the more mundane reason can be traced to oil. It's been about securing oil and oil pipelines for a LONG time. This required booting out some non-conformists and installing military bases, which, ironically, was THE beef that bin Laden had against the US (US bases in Saudi Arabia).
But to say that the dwindling resources have nothing to do with economic decline, well... again, people totally underestimate the importance of oil. Economics gets a bit bent when it's so heavily pushed into a corner, such as the world's leading economic country has seen happen to itself: 1/2 US trade deficit is due to energy imports. Double up on your energy bills and tell me that your economic situation won't struggle. Yeah, I get it that the wonders of free trade would even things out, but the US, who is, again, the major economic superpower (EU is tops, but they're only so by committee), doesn't operate on expensive oil/energy.
The pot was on course to boil, that we put a lid on it (ala pressure cooker) and that because the lid has blown off it doesn't mean that the problem is that the lid was "removed." No, it was the fact that the entire existence of the pot was to facilitate the heating up of water; believing that it couldn't reach boiling, all the while increasing the heat, was infantile.
Jim Rogers know whats happening and is just waiting, pure and simple.
You wanna know what? Huh? The Yen will roll over before the bond markets do!!
An'. thass a fack!!
Signed,
Fran jissan
"...most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right."
This is exactly why I invest with John Hussman. Performance for the tortise, not the hare.
why if i was a bond guy i'd quit and ride a motorcycle around the world
A caught this article this am on CNBC and noted the comments on CNBC were 10-1 running down Jim Rogers. Here the vote runs almost unanimous for JR. Let's vaporize the fool shits that watch IMELT-Vision!
And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right.
Marketing vs. Manufacturing
Sometimes its easier to sell shit than to manufacture it. When market demand for shit outstrips production capacity for shit it really devalues the essence of the commodity.
Herd mentality = Moron Hazard. But then again they wouldn’t be sheeple for shearing if they weren’t in a herd.
And to think ZH used to have a deflationary bias. I think Peter Schiff killed Tyler and has taken over the reigns. Sure inflation will eventually come and the rise in the price of gold is a reflection of the increase in the monetary base; however, in a fractional reserve banking system inflation requires an increase in credit (i.e. demand). I strongly believe this is not going to happen soon. We might have blips like 2010 but deflation is here for a while. You guys have too much faith in QE. QE has not worked and will not work as long as everyone is deleveraging. Has anyone noticed that most industrial commodities have not taken out their 2008 highs. The world is awash in excess supply and no demand. China is the most pressing bubble in my opinion. I would not bet on treasuries reversing their 25 year plus trend until they do or you hit Kyle Bass's Keynesian endpoint (especially when all the pundits on the Christian radio I listen to are talking about rates rising). Don't fight the trend. Rosenberg was right from the start with the barbell approach. Buy gold and treasuries. Rogers has the luxury of time and that will cost him if he stays short treasuries and long commodities. The only thing that might help him is being short stocks. There was a day when zerohedge was filled with the likes of Rosenberg, John Taylor, Nic Lenoir, Albert Edwards, and other independent thinkers. Now it feels like ZH has been hi-jacked by Max Keiser and Alex Jones. ZH used to be a place to get great high quality research that was previously unavailable to the individual investor. Now we get guest posts from armchair economists who do not understand the dynamics of financial markets. Sure you might not want to hold the ten year to maturity but it sure has been a great trade the past decade. Maybe it will be for a little longer. ZH is still a great website and maybe companies have been cracking down on ZH for sharing research, but I am still disappointed. There is too much groupthink going on ZH and not enough contrarian. Just look at the first comment by spiral_eyes. He says treasuries are in a bubble and he gets 19 likes and no dislikes. I am skeptical of jumping on the bandwagon of shorting treasuries when everyone seems to agree it is a good idea. The time will come to short treasuries but my guess is that it will not be in an environment where sentiment towards treasuries is so negative. (http://www.youtube.com/watch?v=-DN_eZHxa8Q) Bring back zerohedge.blogspot.com
1. I think you will find both the inflation and deflation case made here.
2. Right, monetary inflation takes and increase incredit. But there is also currency debasement which can increase prices http://en.wikipedia.org/wiki/Debasement, and cost push inflation http://en.wikipedia.org/wiki/Cost-push_inflation.
3. What Rogers is describing is stagflation http://en.wikipedia.org/wiki/Stagflation Granted, he has been calling for it since the 1980's. The big problem with Stagflation is that in Keynesian theory (if you can even call it a theory, because a theory has to have predictive value. It is more of a notion) inflation and an economic recession are mutually exclusive. The dominant economic theory of central bankers globally has no response to stagflation.
4. We have a subtype of of stagflation, a credit and banking crisis. This is also referred to as a balance sheet recession. Banks have negitive equity, yet government bailouts and regulatory largess allow them to continue to operate. http://www.zerohedge.com/article/primer-balance-sheet-recessions (but substitute bank for firms in the Koo description). It looks like the FED intends to keep shovelling money to the banks, no questions asked, without nationalizing them, firing management, and liquidating the assets at market value. Without doing this, the banks will continue the same behavior that got us into this mess, but with FED money. In addition, there are fewer borrowers with collateral, and an excess of production and capacity (think residential real estate and retail space). Now congress is beginning to get concerned with its balance sheet (Really? Now? Of all times?) and is beginning to institute austerity measures for social programs and state and local governments.
The combined effect of fewer credit worth borrowers, an excess of production and capacity, austerity, and insolvent banks will be a deflationary feedback loop. The FED will continue interest rates a zero, buying what ever worthless securites that the banks offer for 100%face value (TARP, QE) and so on to prop up the banks. This means that the FED balance sheet gets filled up with these worthless securities. This is the bank that issues the US Dollar, the world reserve currency. http://mises.org/daily/3725 I think the FED will continue this until they harm the currency. http://www.financialsense.com/contributors/lee-adler/2011/10/11/foreign-central-banks-selling-us-treasuries-at-unprecedented-levels
So, what is the exit strategy? I can't see one. Muddle through until the securities mature? I honestly don'tthink there will be some massive sudden crisis. I think it will be a long grinding one. This is deflationary, so wealth has to be destroyed. This can be the amount of currency in circulation, or the value of currency. It will be destoyed where ever it is. In gold, in dollars, in stocks, in bonds, in houses, in cars. This will be a donward staircase, where we step down into a crisis, then it levels off. Everyone says "phew, glad that over", "the recovery is just around the corner", "the _____ crisis is contained", and so on. Then there is another crisis, another step down. And again, and again. Unless the banking system is nationalized, the garbage securies liquidaged, and the rule of law applied to the finance industry. But the financial system may not survive that process. On the other hand, the economic system and/or society may not survive the long grinding one.
5. Don't fight the fed. Don't short treasuries.
Good Points. I kind of agree that the currency is being debased but the money has not entered the system yet. Precious metals have rallied because the increase in the monetary base but the bond market does not seem to be worried about the money printed by Ben going any further than reserves on the balance sheet. You cannot have stagflation when interest rates are falling and commodity prices are falling. It just is impossible. Currency debasement also does not go hand in hand with falling interest rates. Has anyone noticed that the Fed cannot completely control interest rates. Before QEII interest rates were low, during QEII interest rates rose, after QEII interest rates declined. Something about the fed keeping interest rates low does not add up. It seems to me like interest rates respond much more to growth in the economy than what the Fed is doing with the monetary base. If there is no mechanism for the Fed to get the money in the system they are doing nothing but setting the stage for inflation when the deleveraging process is finished.
Once all that cash enters the system, we will then have a first class seat to view an historic example of the velocity of money.
Currency debasement and stagflation do go hand in hand if the fed prints new money to buy Treasuries.
6. Paragraphs exist for a reason.
Luke , ur a fucking asshole. Max keiser is the only voice extreme enough to accuratly describe the current situation. Guliotine ftw
Jim Rogers is always hugely well worth listening to along with people like Marc Faber.
Not sure I wholly agree with the stagflation thesis though. Definitley agree with the stagnation part because until the huge burden of debt, social security and unfunded pension liabilities have been defaulted or worked off then I see no way that growth can resume in anything but an anaemic way.
The inflation part is less certain though. I stil feel we will see deflation first with a collapse in all asset and commodity prices and that will trigger a massive unfettered monetary policy response to print as much money as it takes to reflate asset prices. It will be that final massive money printing excercise that will create the ultimate economic collapse and hyperinflationary outcome.
Those who are long commodities/gold now will lose their shirt in the initial deflation period but eventually be proved right in the hyperinflation that follows. The problem is they will have no capital left to take part.
My feeling is stay in short maturity bonds of credit worthy sovereigns until asset markets collapse then when fear is at its height and policy makers in a panic take all your courage and plunge in to buy real assets (without having to borrowing) for pennies on the dollar in a fire sale to protect yourself against the coming hyperinflationary depression.
Art Cashin's piece on the Weimar hyperinflation period and its aftermath quoted on ZeroHedge a few days ago was very instructive. Art Cashin is also someone else I also always listen to.
Rogers has been talking about the death of bonds since 2006 and he's been dead wrong. He'll be right one day but being so wrong for so terribly wrong just doen't cut it and I stopped listening to him.
Pigs get fat, hogs get slaughtered.
You're watching the sweetest free money deal in the whole world eat itself slowly. They stole faster and harder than Pete Rose.
SP500 / DOW daily charts remain choppy but bullish.
A reminder that SP500 / DOW weekly indicators now give bullish warning. If confirmed, it suggests significant equity rally this year.
Importantly, monthly charts remain bearish.
http://stockmarket618.wordpress.com
Are Japanese gov bonds in a bubble- for the last 30 years?
Betting short of tBonds- long bonds- is suicidal. The FED is trying to recreate Japan because that alternative is better than total meltdown.
Of course, Japan was not a global event and Japan has an export economy. Smart. The US has nothing to sell and has no cultural dignity in times of stress.
TBonds are basically savings cash. Cash is currency and cash is king during a deflation. Anyone who bets on bonds as if it's just some alternative asset is going to have their asses handed to them everytime Europe or China or US economy blows up. This is a depression, and there are many, many economic meltdowns and meltups.
Japanese bonds just migrate internally- just as the FED is doing now. So counterparrties or owners are just... Us.
Huge respect for Rogers but the 70s stagflation was driven by excessive union control over wages, OPEC oil price spikes not seen before and was at a time when we had what a third of the debt we have today. Volker and Regan killed that problem and we are on much better terms with the Saudis and we are 3x more energy efficient than we wer then.
No, sorry but massive credit contraction will be the order of the day for at least the next 2-3 years. Any commodity inflation will come from manipulated ETFs and will be brief and spiky.
Well, we're just getting started with our twisting & look at the market shouting. Once again, my superior intellect has proven that the elevation of stock prices can be achieved simply by the blowing of air from my nostrils. Yield curve, you ask? Oh, pay no attention to the lockstep move up in 10's and 30's; that is clearly just another transitory affect that your simple minds can't understand.
I AM THE BERNANK!
SO LET IT BE WRITTEN (well, not really written) SO LET IT BE DONE
Commodities.
The Mike Burry reference is dead on. Follow the crowd or they will gut you like a fish no matter how right you really are.
Ten year is yielding 2% and change, but we're looking at 0% GDP for how long, 1, 3, more years? How's that a bubble? Furthermore, you don't buy bonds for the YTM, you "rent" them, like stocks folks.
Both Rogers, who's been short NDX and long commodites and Gross who got corn holed by dumping treasuries all together in the spring have been more wrong recently than most anyone. I do respect them both, very bright people but I'm doing to disagree this time...
All of these inflation types must believe that the central banks of the world can create credit faster than the markets will destroy it. Note the disconnect between bank reserve growth and money supply growth. In a classic debt deflation in which we now find ourselves, money/credit is destroyed as debts are defaulted upon and written off. The scale of our credit creation since the 1960's is now being adjusted downward in less time than it took to create. Ergo, the inflation will come later, not sooner. Long T-bonds are still a safe bet.
Failure of logic and elementary monetary theory.
Credit is NOT money! Nor functionally equivalent to money.
If it were, we would have seen a HUGE inflation, on the order of one thousand percent, over the last 30 years to match the growth in the supply of credit/debt. Since the overall inflation that we have had within that timeframe was not nearly that large (even ignoring the government's laughably low reported CPI figures), and is mostly or entirely explainable solely by the growth in the money supply over that same period, I suggest you rethink your thesis.