Stocks, Gold, Silver, and the printing press.

[rhino]

So, what do we do?

1. Win giant lottery
2. Buy all kinds of assets to diversify as much as possible, but keep plenty of cashy money too
3. Live your life because you have enough that you don't have worry about what regular people have to do

 

[smokingman]

So, what do we do?

At this point I would stay very liquid for sure.I suspect the US Dollar will continue to gain value against the Euro(which may cease to exist officially in the next few months)and most other currencies unless the FED starts QE4.The Swiss unpegged from the Euro today,two of the largest systemic banks in Greece requested emergency fund liquidity today,the Euro itself is tanking on an epic scale Currency converter - latest exchange rates and currency news - FT.com When your currency falls against the YEN while Japan is doing the largest QE program in history,you are in trouble.
As the US dollar gains strength it will put ever greater downward pressure on stocks(same stock is worth LESS when priced in a currency that is gaining value,the opposite of what we have had for the last 6 years)and deflation could become a real issue for the United States.
It is hard to do anything these days honestly.With high frequency trading accounting for 79% of every settled trade in 2014,central banks buying equities,derivatives,leverage,and a near total absence of regulators(per the congressional report on banks manipulating physical commodities since Frank Dodd was passed) I think it is best to just get out of the way at this point.Why stand in front of the train when you can watch it blow by the station?
I would try to reduce debt and own real physical assets.

 

[Jackson]

So, if I own a stock worth $50/share today, and tomorrow the dollar deflates and has more buying power, but my stock is still worth $50/share.... where did I lose value? It seems like I gained value since my stock is traded in dollars and still worth the same number of dollars?

Now that's not saying that deflation would not have a significant effect on things like a company's cost of capital, its ability to cover its debt, the price of its goods, and ultimately its value (and price) to investors. So the price itself may come down. But at the same price, why is it worth less?

 

[smokingman]

So, if I own a stock worth $50/share today, and tomorrow the dollar deflates and has more buying power, but my stock is still worth $50/share.... where did I lose value? It seems like I gained value since my stock is traded in dollars and still worth the same number of dollars?

Now that's not saying that deflation would not have a significant effect on things like a company's cost of capital, its ability to cover its debt, the price of its goods, and ultimately its value (and price) to investors. So the price itself may come down. But at the same price, why is it worth less?

In your example you would indeed gain value.That said unless the company has increased in total worth(as compared to the global economy)the shares will fall when priced in a deflating currency.The company value remains the same,but if you price it in a currency that is increasing in value compared to the rest of the world the share price will fall.It is the exact opposite of pricing it in an inflating currency.It may take a time for the price to adjust,but it has to.
For a great stark example look at the Swiss stock market over the last 48 hours after the currency gained 20% when they unpegged from the Euro.
The companies where suddenly worth LESS(currency) as the currency value increased,though their value did not change.The same thing is going to happen in the USA,and already is...ill be it at a much slower rate.

 

[ruger1800]

It's damn hard to spend more on retail when you health insurance costs went up 80%.

But hey, those consumer spending numbers sure looked good for the same reason!

Mine went up 250% in june.

 

[Hohn]

The record high on the DOW was set December 5,2014.Five days after I made my "top" call.

Since then things have gone hill.
U.S. Stocks Tumble to Cap Dow?s Worst Week Since 2011 - Bloomberg
One of the main reasons for the declines is of course tightening credit.

• HY Credit's worst 2 weeks since May 2012
• IG Credit's worst week in 2 months
• 
  [/IMG]
• Crude Carnage Contagion: Biggest Stock Bloodbath In 3 Years, Credit Crashes | Zero Hedge

Looks like this posting may need an update or revision?

 

[pudly]

Interesting. Germany is continuing to repatriate their gold from the Fed and other sources. I thought this had stopped after the initial pathetic Fed performance (5 tons returned in 2013). They just announced that they had repatriated 85 tons of gold from the Fed in 2014. Their agreement stipulated that the Fed would return 300 tons of gold by 2020, so this will be going on for a number of years yet as the Fed gets back gold that they had been leasing out to generate additional revenue.

https://news.yahoo.com/germany-repatriates-more-gold-bundesbank-100251153.html

 

[AtTheMurph]

Mine went up 250% in june.

So you are doing your part to be the great consumer on whose back our entire fortunes lie!

 

[AtTheMurph]

Interesting. Germany is continuing to repatriate their gold from the Fed and other sources. I thought this had stopped after the initial pathetic Fed performance (5 tons returned in 2013). They just announced that they had repatriated 85 tons of gold from the Fed in 2014. Their agreement stipulated that the Fed would return 300 tons of gold by 2020, so this will be going on for a number of years yet as the Fed gets back gold that they had been leasing out to generate additional revenue.

https://news.yahoo.com/germany-repatriates-more-gold-bundesbank-100251153.html

Fractional reserve gold....... Think about that.

 

[pudly]

Fractional reserve gold....... Think about that.

Yup. That's why the Fed couldn't return all the German gold in the first week. They had to wait for the "loans" to be repaid.

 

[smokingman]

In your example you would indeed gain value.That said unless the company has increased in total worth(as compared to the global economy)the shares will fall when priced in a deflating currency.The company value remains the same,but if you price it in a currency that is increasing in value compared to the rest of the world the share price will fall.It is the exact opposite of pricing it in an inflating currency.It may take a time for the price to adjust,but it has to.
For a great stark example look at the Swiss stock market over the last 48 hours after the currency gained 20% when they unpegged from the Euro.
The companies where suddenly worth LESS(currency) as the currency value increased,though their value did not change.The same thing is going to happen in the USA,and already is...ill be it at a much slower rate.

That did not take as long as I thought it would.

Stronger Dollar Hits U.S. Earnings From P&G to DuPont to Pfizer - Bloomberg
The dollar’s surge is reducing earnings at American companies from Procter & Gamble Co. (PG) to Pfizer Inc. (PFE) and DuPont Co. that make a large portion of their revenue abroad.
P&G, the world’s biggest consumer-products maker, today reported profit that missed analysts’ estimates in the quarter ended Dec. 31 after what Chief Executive Officer A.G. Lafley called “unprecedented” foreign-exchange rate fluctuations reduced sales by 5 percentage points. Chemical company DuPont and drugmakers Pfizer and Bristol-Myers Squibb Co. (BMY) all posted annual forecasts that trailed predictions, in part because of the stronger dollar.
While 76 percent of Standard & Poor’s 500 Index companies have beaten analysts’ estimates so far this earnings season as the U.S. economy weathers a slowdown in global growth, the dollar’s advance is making American goods and services more expensive overseas, eroding sales. The greenback’s strength has taken some companies by surprise, prompting United Technologies Corp. (UTX) to cut an annual outlook that was just a month old yesterday.

Expect more of this.Companies like Coke,3M,IBM,and pretty much any company that sells anything over seas have margins crushed by a strong dollar.It does not matter why the dollar is strong(in the case because the Euro and Yen are devaluing as fast as possible).

The market would be down even more if they had not used rule 48 to open this morning.
http://www.zerohedge.com/news/2015-01-27/nyse-invokes-rule-48-pre-empt-selling-panic
Microsoft down 10%

http://www.zerohedge.com/news/2015-...ft-tumbles-10-destroys-4-years-dividend-gains

 

[smokingman]

Quietly behind the scenes - and not at all reflective of a collapsing global economy (because that would break the narrative of over-supply and pent-up demand) - The Baltic Dry Index plunged over 5% today to 632... That is the lowest absolute level for the global shipping rates indicator since August 1986

http://www.zerohedge.com/news/2015-01-29/wtf-chart-day-baltic-dry-index-crashes-lowest-29-years

This is with nearly one third of global shipping capacity parked already(which should drive up prices).Link to images,and more on the "ghost fleet". Revealed: The ghost fleet of the recession anchored just east of Singapore | Daily Mail Online

 

[Hohn]

That info about the ships is stunning.

Wow.

 

[smokingman]

That info about the ships is stunning.

Wow.

Apparently there are also fleets parked off south Africa and and Taiwan as well.

http://uk.reuters.com/article/2015/01/08/asia-freight-idUKL3N0UK12F20150108

You can see them on google earth.It is pretty easy to tell which ships are moving,but you can see hundreds that are not(many tied together in groups of 2 and 3).They are not just in one area,but south,east,and west.
https://www.google.com/maps/@1.2493969,103.566459,15407m/data=!3m1!1e3
https://www.google.com/maps/place/Singapore/@1.2198793,103.8216567,15393m/data=!3m1!1e3!4m2!3m1!1s0x31da11238a8b9375:0x887869cf52abf5c4

 

[smokingman]

German 30 year notes fall below 1% yield(record low).http://www.zerohedge.com/news/2015-01-30/30y-german-bund-yield-plunges-under-1-record-low

Greece no longer wants the EU 7 billion bailout package."Greek Finance Minister Yanis Varoufakis has a clear message for his European overlords of the past: “We don’t want the 7 billion euros...We want to sit down and rethink the whole program."
http://www.zerohedge.com/news/2015-...-want-7-billion-we-want-rethink-whole-program

Greek bond yields hit 21%(up another two% since this article was written a few hours ago).http://www.zerohedge.com/news/2015-01-30/greek-bond-yields-surge-above-19-after-eu-talks

Since June oil prices have cost US investors 390 billion in losses.Oil?s collapse has cost North American investors $390-billion since June | Financial Post
And will continue to greatly impact our GDP(our number one export being refined petroleum products).
We also have lifted the ban on exporting raw crude,further driving the global price down(the ban on exporting crude has been in effect since the oil crisis).
Oil Export Ban Just Lifted And There?s 1 Company Already Positioned to Profit

 

[pudly]

Greece no longer wants the EU 7 billion bailout package."Greek Finance Minister Yanis Varoufakis has a clear message for his European overlords of the past: “We don’t want the 7 billion euros...We want to sit down and rethink the whole program."
http://www.zerohedge.com/news/2015-...-want-7-billion-we-want-rethink-whole-program

I half agree with them. The EU is offering them a chance to go further into debt and the Greek FM doesn't want it. Good for them. Unfortunately, based on their proposed platform, the new Greek government has no interest in cutting spending to fit their actual means. This is reflected in their bonds (21%!!!) which reflect that people don't have great faith that they'll be paid back. Unfortunately, neither path will generate long-term stability and prosperity. Sigh...

 

[rhino]

So, in a nutshell, we're all doomed?

 

[smokingman]

So, in a nutshell, we're all doomed?

Not at all.As a matter of fact we are looking great in the short term as far as world reserve currency status is concerned.Deflation will help not hurt average people.

The markets though are in for a very rough ride.GDP grow,Job growth,and anything to do with the real productive economy are not going to do well.
I also suspect the unwinding of a large chunk of the derivatives market over the next few months,leading to another financial crisis.Pick your poison.Greece,Russia,EU,Venezuela,Brazil,Mexico...things are breaking for sure.

All of that is predicated on the FED not raising rates or starting QE 4.

 

[Hohn]

So, in a nutshell, we're all doomed?

No, but the stronger dollar is reason for concern, and I suspect rather than raising rates we might be in for more QE yet again.

It's not a strong dollar per se that is concerning, but rather it is the excess liquidity demand that it represents. WHY is the dollar gaining? It's because the world is scared of other currencies and flock to the relative safety of the Dollar. Thus the higher demand for dollars, which pushes yields way down and strengthens the dollar.

With due respect to Smokingman, I think deflation does and will hurt the average man, just as it did during the Depression. Deflation transfers wealth from debtors to savers. Inflation punishes savers are rewards debtors.

The average American, sad to say, it in debt up to his eyeballs. Deflation puts downward pressure on wages too--not just consumer prices, but also producer prices. Wages are the producer price of labor.

Part of me thinks it only just that those who voluntarily assume a huge amount of debt would bear the pain of the decision and that savers would be rewarded for their prudence. I believe in rewarding good behavior and punishing bad (to the extent these are good or bad behaviors, clearly an overgeneralization).

But in terms of the macroeconomy, it is bad. Savers spend less than spenders (duh). If the effect of deflation is to reduce aggregate spending--as is almost always the case-- then recession is a likely outcome.


Sound monetary policy is a necessary but insufficient condition for economic prosperity. Increasingly, the correct monetary policy is less and less powerful to help an economy heal because the larger factors on the rampant price distortions caused by government policy (with attendant capital misallocation), as well as the welfare state programs which discourage productive behavior and economic output.

 

[smokingman]

No, but the stronger dollar is reason for concern, and I suspect rather than raising rates we might be in for more QE yet again.
I hope they have the common sense to not raise rates,it would only further the rush into the dollar.I also suspect we may end up with negative rates on US Treasury notes.
It's not a strong dollar per se that is concerning, but rather it is the excess liquidity demand that it represents. WHY is the dollar gaining? It's because the world is scared of other currencies and flock to the relative safety of the Dollar. Thus the higher demand for dollars, which pushes yields way down and strengthens the dollar.Just wait until the Euro actually collapses,which I think will happen in 2015.

With due respect to Smokingman, I think deflation does and will hurt the average man, just as it did during the Depression. Deflation transfers wealth from debtors to savers. Inflation punishes savers are rewards debtors.
I agree if it lasts very long or is very deep.The great depression though I do not think represents what would happen well,for what would happen in the modern world I would look at Japan.I think the US turning into a stagflation environment is much more likely than what occurred during the great depression.
The average American, sad to say, it in debt up to his eyeballs. Deflation puts downward pressure on wages too--not just consumer prices, but also producer prices. Wages are the producer price of labor.

Part of me thinks it only just that those who voluntarily assume a huge amount of debt would bear the pain of the decision and that savers would be rewarded for their prudence. I believe in rewarding good behavior and punishing bad (to the extent these are good or bad behaviors, clearly an overgeneralization).Sadly bad behavior(debt) is rewarded,and currently saving in dollar terms feels like a punishment with zirp.

But in terms of the macroeconomy, it is bad. Savers spend less than spenders (duh). If the effect of deflation is to reduce aggregate spending--as is almost always the case-- then recession is a likely outcome.I believe we are in a recession,and never came out of the one that started in 2008.GDP minus inflation,and we really have 0 or negative growth.


Sound monetary policy is a necessary but insufficient condition for economic prosperity. Increasingly, the correct monetary policy is less and less powerful to help an economy heal because the larger factors on the rampant price distortions caused by government policy (with attendant capital misallocation), as well as the welfare state programs which discourage productive behavior and economic output.

I will totally agree with you on that,and the price distortions caused by the Federal Reserve(not government).