Depression in the USA - Deflation verus Inflation

[lakedaemonian]

I am not bullish either on gold or oil. Investor sentiment on both is extremely high - close to a 100%. When that happens you know a peak is at hand - for who is there left to actually invest if most already have?

Gold in particular looks bearish to me - the classical view of oil is changing because of the supply- demand thing and history is now no guide with oil. I am surer of calling gold down than oil.

Would not surprise if the US $ found a bottom in the near future.

My short-to-medium term hunch is that both oil and gold will come off the boil a BIT with fears of a deep recession being front of mind.

I have no idea where gold/silver/oil will deflate a bit to.....but I suspect it will be a great opportunity to load up for the long-term.

I doubt any oil/gold/silver drop will be severe.......growing energy demands in Chindia, even in a recessionary environment will cushion any selloff, and the increasingly frenetic hunt to find a quality haven for dollars losing their purchasing power will see gold/silver continue to do well in my opinion.

Gold below $900 will be nice, below $850 would be nicer

Silver below $18 would be nice, below $17-ish would be nicer

Oil below $90 would be nice, below $80...back up the tanker truck

Inflation adjusted none of the three have exceeded past highs.

I find it hard to imagine the US digging itself out of the huge hole it's in by any means other than accelerating already far-under-reported inflation figures.

I think of oil/energy/food(and gold/silver to a much, much lesser extent although all interrelated) as the new global currency.

I'm betting on my own personal financial Maslow's heirarchy of needs:

food(ag commodities)
energy(oil/natural gas)
money to buy food and energy

Who can stick their hand up and put their cajones on the line and say with authority how the $500+ TRILLION derivatives debacle will unwind?

I certainly cannot...and while there is considerable risk in investing too much in commodities on the cusp of a potentially very severe recession I'd rather be sitting on a mix of commodities and cash(cash to take advantage in the growing buyers market).

Bear Sterns is just the beginning.....kind of like the iceburg that sank the Titanic....very little of the 'burg is visible.....very little of the derivatives debacle is in mainstream media, and no one really knows what danger lurks below the surface.

Just my 0.02 doom and gloom cents

[lakedaemonian]

One more thing to add.......

So many people are focused on the price of oil(and specifically the price of a litre of 91).

When people see charts of energy prices going parabolic when measured in US Dollars I cringe a bit.

I'd like the see mass media display a chart showing the price of oil measured in "stuff" like silver, gold, wheat, milk, copper, iron, etc.

I bet if you took a basket of commodities and used them as a pseudo currency you'd find the price of oil hasn't really moved considerably higher in the last 7 years......which tells us the problem is INFLATION.

Inflation in necessities has been masked by cheaper Chinese made rubber dog poop.

Again just my 0.02c

[Laxmi]

Against all odds, the US financial markets have recovered with a few exceptions. The Dow is up by 260 points, the dollar is up, and gold has plummeted again. In the space of a few short days, gold has fallen by well over $100 dollars to a new close around $910. This has signalled an end to the commodity bull run of several years with almost all commodities down significantly over recent days. Oil is down around 10% to now be hovering around $101.50. Even spot thermal coal has shifted lower.

With all this gloomy news on the horizon, it is surprising that the Dow and US dollar have held up so well, let alone made reasonable gains. The best explanation for this result, comes courtesy of John Authors of FT.com. A simple graph over several years from a fund manager’s survey shows that a lot of fund managers have more cash available than is average. (in fact the graph indicates multi year highs) This would go some way to explain recent market behaviour. Now that the FED has come out and made emergency funding available to a far wider audience, fund managers are hedging that the worst is over. They are now searching out and buying up any shares that they feel, holds excellent potential and may have been oversold over previous months and days.

Hence the recent dramatic rise in some individual shares; and the subsequent uplift for the overall market sentiment. However John’s latest report suggests that the rush into agricultural commodities has ended with a crash. Investors remaining in this sector of speculation are now up 5% for the year compared to 25% a few short days ago. With so much speculation going on in the market and a resounding return to fundamentals by more and more mainstream investors, it is impossible to predict any goings on in the market apart from a likely increase in volatility with a decidedly downward trend over time.

To make long term investors even more nervous, it is rumoured that the latest tool in the US FED’s impressive armoury to fight off a recession; is titled ‘ATM for 401K' The reason for this tool is to help out workers who may have recently lost their jobs and may be in need of extra liquidity to starve of the likely fees associated with making new arrangements on pension fund payments. Generally considered a most stupid idea by respected analysts of CNBC, the reason given by a proponent was; ‘where else are these people going to find upwards of 6k?’ It should also be remembered that this will only act as a loan and will be subject to most loan conditions. The loan will need to be repaid back into the person's 401K account at some time in the future.

I personally think that although the idea is feasible in theory, in practice it puts at risk people’s retirement savings. For that reason alone, it would have to be discounted; unless of course there was a real emergency and there was no other choice.

[tricha]

Super Loses $84 Billion
London, England - Melbourne, Australia
Thursday, March 20 2008
In This Issue:Super loses $84 billion...

Gold at $2,138...

Financial horror stories...

----------------------------------

From Dan Denning at the Old Hat Factory:

--Boy did we hear it from readers yesterday. Below, you'll find some clarification on our remark about who really bombed Pearl Harbor in 1941. But first, let's cover the markets before we jump on a plane to Sydney for the weekend.

--"Fed gamble may pay off this time," reports a headline in the Australian. "Fed plants seed of hope," says the Age. "Share prices boosted by Fed action," reads the Sydney Daily Telegraph.

--Sure enough, the ASX/200 was up 200 points yesterday, or about 4%. In dollar terms, local shares recouped about $43 billion in lost value. Keep in mind it's down about $400 billion since November first. But you have to start somewhere, don't you?

--One good place to start is to re-examine the fundamental assumption that stocks always go up. Obviously they don't. Whole generations of investors (and by that we mean the 15 to17 years at a time) go without seeing any real progress in the share market. If you're investing during one of those cycles, shares don't help you get any closer to your financial goals.

--Take a look at the charts below and you'll see what we mean. The first shows the Dow Jones Industrials based on a monthly closing average. You can see that until the Federal Reserve came into existence in 1913 and World War one kicked off a few years later, shares were and up and down affair-a mechanism for funnelling capital to America's ambitious corporations, but not really a way for the average punter to get rick. J. Pierpont Morgan probably did pretty well. The man in the street, not so much.



--Then there is the matter of the crash in 1929. When you put it on a long-term chart, it all looks pretty sudden. But when you lengthen it out over just a few years, you can see that after the first plunge in October of 1929, the market didn't go straight to the bottom. It fought. The chart shows this.



--You can see that the Dow didn't make its all-time bear market low of 41 until 1932. Remember, the market had topped at 381 in 1929. It took over three years to reach the bottom, some 89% off the highs.

--What happened those three years? Economic reality fought bitterly with investor psychology. Trained to buy the dips, and perhaps driven by the optimism and will to survive that's buried in human DNA, investors never quit and never quit losing money.

--Something deeply psychological happens during a bull market. The bull market that peaked in 1929 somehow made it impossible for investors to believe you could go whole years-decades even-and lose money in stocks. It clashed with their direct experience. And if your past experience is no reliable guide for the future, what are you to believe?

--In any event, we are not at all convinced that a rate cut here, a smashing of the discount window there, or a new lending facility here AND there will forestall economic reality. We know Ben Bernanke is a student of the Great Depression. Surely he knows bad debts have to be liquidated before an economy can move on. But it doesn't mean he won't keep trying to re-inflate. And some investors-as yesterday shows-are willing to follow his lead.

--The Japanese are increasingly unconvinced that Bernanke can turn things around. They are selling the dollar and buying back the Yen. "For financial firms and the U.S. economy, the worst is not over,'" said Tetshisa Hayashi, a currency strategist of foreign-exchange trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. He told Bloomberg that, "`Japanese investors think now is a good opportunity to sell the dollar, taking advantage of its big rally yesterday"

--How will you know when the greenback is well and truly doomed? Keep an eye on the TIC data. TIC stands for Treasury International Capital report. It's a report published by the U.S. Department of the Treasury showing net foreign purchases of U.S. stocks and bonds.

--Despite the nominal rise in U.S. stock prices, the falling U.S. dollar acts as a huge dis-incentive to buy dollar-denominated financial assets. Last month's TIC data showed no big changes in the overseas consumption of U.S. bonds. But watch out for next month. You could also just keep an eye on bond prices and short-term yields in the U.S. Yesterday, short-term bond prices fell. We expect to see a lot more of that.

--A falling dollar should also contribute more strength to commodities. But yesterday gold and oil fell quite a bit. What gives?

-- The dollar had a rare moment of inspiration. It was delusional inspiration, though...it won't last. Besides, commodities have other reasons to go up than dollar weakness. Our French technical and currency guru, Gabriel Andre, explains:

--"Commodities are negatively correlated with the US dollar, and in the short-term the US dollar is oversold. Many traders feel the Fed has played its hand fully, and see this as a reason to buy back into the dollar…in the short term, that is.

-- "But with cheaper commodities, there are likely to be bargain-hunting investors looking for a good entry point into the market. Further down the track, strong demand from Asia for real goods is likely to continue. Tangible assets still have the wood over financial assets…so cheaper commodities will generate more buyers, particularly in gold.

--"A fall in gold gives it buying strength, technically…and it will enjoy fundamental demand from those wishing to hedge against an inflation and the long-term dollar weakness."

--Gabriel has more to say on the topic of gold and commodities in the latest edition of Diggers and Drillers. He even points out exactly where gold should be a buying opportunity.

[stevo1]

Believe if you will commodities bull run is over personally I cant see it.There was a large amount of speculation in commodities by hedge funds and financial institutions(whose prior financial shenanigins have just been underwritten by the Fed and the US taxpayer).One wonders what the conditions of the underwriting are and Bush's Crisis Committee's requirements on Investment community and banks.The US will attempt to maintain the US $ as the commodity exchange currency at all costs for without that the US influence over the rest of the world is undermined.Storeage of wealth in commodities is not in the US interest. Iran's insistance away from $US settlement for oil has practically assured " liberalisation" of Iran by the US so the people there may enjoy the same great democratic joys their Iraqi neighbours have endured and continue to have.Sadam also was about to decouple oil from US $ before all those nasty weapons of mass misinformation were discovered.The point here is commodities have been artifically driven down for the moment.The demand for the "real stuff"(physical product) is still there the artificial stuff(futures etc) has been changed.Now will the rest of the world buy this sudden revival to shore up US stockmarket and dollar?

[tricha]

http://www.youtube.com/watch?v=gUkbdjetlY8&NR=1

http://www.youtube.com/watch?v=4sZCN...eature=related

[FarmerGeorge]

Cramer's vid has been doing the rounds over here the past few days. The original question was indeed about whether an investor should be concerned about the liquidity of their investments at Bear, rather than their ownership of Bear stock. Those with investments in the Bear funds should still be fine, as Cramer says.
He's not someone to listen to for investment advice, his show is a joke, and he tends to just be a follower of the crowd rather than give any actual insight into markets, but this time I think he may actually only be guilty of being unclear, rather than being stupid. But on a show like this, given the people who would make a decision based on his advice, I can understand why he's being chased by a lynch mob. I wouldn't take that job no matter what the salary is!

[winner69]

Whatever they say about his tips being worthless Cramer worth a fair bit himself

[tricha]

What History Tells Us About Recessions

Deloitte might be an accountancy firm, but it is happy to weigh in with some interesting historical statistics surrounding past US recessions and what usually happens next.
Consider first that since the beginning of 2008, the S&P 500 index (large cap stocks) is down 11%, the Russell 2000 index (small cap stocks) is down 12.5%, the MSCI Europe, Australasia and Far East index has fallen 9%, and the MSCI Emerging Markets index has fallen 13%. These are significant falls.
Consider now that the cumulative returns for the period 2003-07 have been 83% for the S&P 500, 112% for the Russell 2000, 166% for the MSCI EAFE, and 383% for the MSCI EMI.
If one assumes a recession actually began in the US in December, it is useful to look at how the recessions of the past 50 years played out. If this recession were to play to the average, it would last until October. The S&P 500 would ultimately fall 24.38% before turning around. Within one year it would have rallied 31.44% Within two years it would have rallied 56%. The turnaround in the index would occur somewhere between 4-10 months before the bottom of the business cycle which, in this case, means any time between now and July.
The S&P had fallen 20.2% from its 2007 high to its recent low. If that proves to be the extent of the correction, the index will have to rally 25.5% to retest the high. However, the longest recession in the last 50 years, following the Arab oil embargo of 1973, lasted 16 months and caused the S&P to fall 46%. But it still performed relatively well on the way out, as the following table suggests:



Deloitte is also happy to point out several factors in place today which should help to keep any recession shallower than most. Firstly, balance sheets of non-financial companies were strong going in. Secondly, there was not a lot of hiring on the way up, meaning there should thus be little firing on the way down. Thirdly, inventory levels have been low on the way up. Typically recessions impound when companies have overextended their balance sheets, over-hired staff and built up inventories.
But perhaps most importantly, growth in much of the rest of the world is still strong, which also provides a market for US exports.
Given this current crisis is in the banking sector, Deloitte recommends looking at two specific factors as signals for a bottom. Firstly, a feature of the crisis has been the freezing of the asset-backed commercial paper market, which had shrunk for 18 weeks in a row from August. It has recently shown signs of stabilising, and any growth can be taken as a sign of turnaround. The second is the Fed's Term Auction facility - the means by which commercial banks access funds. The Fed has been furiously pumping liquidity into the system via this facility, and has since extended it temporarily by other means to investment banks. When this facility is no longer being utilised, it could be all over.
As to when that might happen is as yet unknown.
But Deloitte does advise that investors with a time horizon greater than one year would be foolish at this point to be unwinding stock positions and hiding in cash. As most recession bear markets have recovered within the space of one year, longer term investors are at risk of missing the early returns. To quote Baron von Rothschild, "The time to buy is when there is blood in the streets, even if it's your own".
The accountants also remind, however, of what it always says in the fine print:
"Past performance is no guarantee of future results".

[Laxmi]

UBS announces another major right down associated with subprime and the markets react positively. 19 billion dollars seems like a large sum to me, however the news was greeted favorably. Seemingly the worst is over. Indeed; Lehman Bros, of Bear Stearns fame; has just announced a capital infusion of 4 billion dollars from private investors.

What is going on? I struggle to see who would be brave enough to invest in such a risky Wall Street bank associated with subprime, so soon after the crisis. This latest rally can be seen as no more than speculation alone. No other investors would dare suggest that the financial crisis is over so soon. Therefore it can be best seen as yet another chance for risk adverse equity holders; to sell. Sell now while there are still opportunist buyers. This may well be your last chance before the inevitable downturn begins. The downturn is now inevitable for many reasons. One is that the market is no longer reacting sensibly. I mean a gain on the Dow maybe on the UBS news, but nearly 400 points on such distressing numbers. This sounds like desperation. Who knows, perhaps wishful thinking and denial of the severity of the crisis will suffice to usher in a new bull market.

I fear the rally will be short lived. The world is in a crisis. Many leaders credibility’s are on the line. Is climate change really that much of a concern that we would risk adding significant financial strain to an economy already under severe risk of recession? I fear that when the point is made as dramatic as this;
Many will hedge against practicalities. For example, Australasia will need to start imposing some taxes soon to pay for some of the carbon credits that it will need to buy in the not too distant future.

In reality, there is no advantage in Australasia rushing ahead on this issue since the size of Australasia makes any of our efforts negligible compared to the world stage in any case. Therefore it could easily be argued, that Australasia would be better off putting off any major changes in this direction. Australasia might feel inclined to renege on its international obligations for a while and play a wait and see approach. Let America and China lead by example first. In other words; Australasia steps aside while this entire carbon trading scheme is being set up. In the meantime, the Australasian governments will invest in clean technologies and encourage energy conservation. Renewable energy sources will be favored. Investments will be made in researching and developing methods of sequestering CO2, especially in regards to burning vast amounts of coal.

In other words; nothing will essentially change, but at least Australasia does not suffer from burdensome taxes. In this regard, Australasia becomes much like China and America, vast parts of Africa and South America, Russia, India, etc etc.

Meanwhile, the climate change clock ticks away, but as nothing is done to reduce greenhouse gases, these gases increasingly start to accumulate to levels unseen in many a millennium.

Sorry that I changed the subject to climate change. Please ignore the last section.