Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts

April 3, 2023

Gold and Miners Poised To Make a Big Run

Throughout history there have been many years and even decades when gold outperformed equities. The question I am going to ask is "is this time different?" I am particularly interested at looking at the 1970's when the U.S. had high inflation and low economic growth. The FED is tightening yet many economic indicators are slow to point to a full-blown recession. Inflation has been hard to tame for Jerome Powell thus far. Stagflation is a probable outcome in this economic scenario. There is also the increasing potential for geopolitical events as it relates to oil as there is tension between eastern and western nations.

So far, many parts of the economy have been unprecedently resilient to higher rates. Housing has been one of them as many people are buying from fear of missing out and moving to cheaper cities. The second period in history that saw gold outperfrom equities was 2000 to 2012. This was following a long secular expansion and tech bubble collapse. We now are at the end of a long expansion and crypto and Bitcoin bubble burst.

Gold also did well following the 2008 banking panic but I am particularly interested in the years when gold rose as stocks fell. These are the years in the 1970s and 2001 to 2003. So, I see a couple likely scenarios economically. The FED tightening causes a recession that is mild or severe. If it is mild I see a possibility of inflation sticking around like the 70s. If it is severe and there are major bank panics it will likely be resolved quickly as 1907 was with J.P. Morgan helping bail out Trust Company of America and the 2008 panic were. In 2008 much of the deflation came in less than one year as housing collapsed and banking products failed. The Government in 2008 was fairly quick to inject capital and launch QE in 2009. Gold benefited from that.

In 2009 I predicted the pivot point on gold and was bullish right before its historic run. I said, "This chart sends a powerful signal. It is saying that it is more than likely that gold the commodity will continue higher. Let me rephrase that. Very likely." I had noticed a triangle formation on the gold chart.

What Can We Learn From The Past?

Let's switch gears and go back to the 1970's. It was a period of much uncertainty politically and economically. The highlighted regions show two periods where stocks fell and gold rose. Even the entire decade had stocks losing to gold. Gold traded for $35 in 1971 and went to over $850 returning 2,300% in ten years.

Next let us view the 2001 recession and gold and stocks. We see yet again periods when gold rose as equity indices fell in 2001 to 2003. This was during the recession of 2001 when unemployment rose from 4% to 5.5%. Then Fed Chair Alan Greenspan kept interest rates historically low during his tenure.

2001 gold chart

Here is a longer-term chart of equities and gold.

gold vs stocks

The gold market is now signaling extreme strength as the daily chart is showing a very powerful consolidation pattern. It is a bullish triangle formation as you can see below. Gold miners are alreading breaking higher from this consolidation like Franco-Nevada (FNV). I am currently long the gold ETF GDX calls. Other liquid ETFs include VanEck Junior Gold Miners ETF GDXJ and SPDR Gold Trust GLD. GLD doesn't hold physcial reserves though. Sprott Physical Gold Trust PHYS is a gold etf that holds actual gold.

gold technical analysis chart GLD

Final Thoughts

Everyone is scrambling to find cheap gold mining stocks. As gold is consolidating at levels near last years highs I see a good possiblity of different scenarios. Over many recent years gold has been a "risk on" trade. Meaning it usually will only rise when stocks and other assets do. There were a couple days during the most recent banking troubles, however, where gold and Bitcoin had positive days while equities fell. Currently, gold is surpassing Bitcoin in this potential "flight to safety."

I see it rising as it did in 2001 and 2009 if the FED ends up reacting to a recession with QE like 2009 or with another extreme loosening like in 2001. The odds are stacked that we are going to get a recession with historic FED tightening and yield curve inversion. The other scenario is a recession with elements of inflation sticking like the 1970 and even a weak U.S. Dollar.

Whether one sees it as a stagflationary safehaven or an inflation hedge on a declining stock market. I see gold as a historically wise investment vehicle at this time and for many years to come as we sort out this economic cycle. It may start making new highs very soon or it may take months before the momentum starts but I see gold moving higher over the next year. Increasing allocation to gold just makes sense.

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Full disclosure: I am long GDX call options currently and may take positions in stocks mentioned. I have no physcial gold holidings. I have approx. two dozen silver coins.

charts courtesy bullionvault.co.uk and stockcharts.com

August 12, 2021

TLT Short Setup

Long-term T-bonds look like a top was in. It did a technical top formation and took out support. They have just rebounded and kissed right off the old support line that is now resistance. Very text book action going on here. The fundamentals are when rates go up bonds go down and it looks like that is going to play out if the FED is forced into a corner with rates because of inflation. I think shorting bonds is a good play here. I am looking at the TBT ETF.

April 19, 2016

Unemployment Claims Trend

The St. Louis Fed put out a graph of initial claims for unemployment benefits. 253,000 is the lowest number seen since the 1970s. You can see how the major spikes coincide with recessions. It has been such a long time without a major rise that it seems impossible that the current trend can hold much longer. I drew a line that shows the bottom of the trend. The line arguably could be a little higher and flatter. It seems to fit the bottom best here though. Regardless, we are overdue for a spike.

This graph shows just how well the economy has been doing. The FED keeps touting 2% inflation targets or whatever magic figure it is. What a joke. We don't need it. Clearly, the only need for such targets is national debt service on our huge national debt. GDP growth last year was modest considering the situation. Some day inflation is going to take off and the FED will be to slow to adapt. That's how it has always been done in history atleast.

August 25, 2015

Wild Monday

I'd like to start this off by emphasizing the current situation in US equity markets. Putting it in perspective we have been on a historic bull run since the March lows of 2009. Nothing compares historically to the 1982 to 2000 run but this has been up there. Lately the market has been going straight up. These kinds of corrections in bull markets are good because it keeps the pace slow and steady and avoids a bubble crash. Let's face it valuations have been getting a little ahead of themselves on US companies. Netflix NFLX was trading at a price to earnings multiple P/E of 200. Other big tech companies like Amazon AMZN, Apple AAPL were getting expensive to. Geez, not even mentioning Tesla Motors, GoPro, Alibaba etc etc. These are all falling. They are right to fall.

The media gets over-dramatic about other economies. The US economy has been doing pretty well considering the rest of the world. Don't quote me verbatim but roughly a 1% change in GDP in Europe only effects US GDP 1/4%. It is a global economy now but I'm not convinced the US is going to go into a deep recession because of China or any other Region. There may well be a recession. I don't think it would be a bad thing. Recessions are a healthy part of economic growth. Greenspan did everything he could to prevent them and look at the bubble it created. Bernanke to.  Slow and steady is good.

I just did a post on my trading blog Dynamitestocks.com about some of the things that went on early Monday morning during the US session. I don't know if all of the media is reporting it but we did in fact trigger circuit breakers within 30 minutes of the open. Circuit Breakers are "safe-guards" the stock exchanges put in place to stop a crashing market. A drop of 7% on the Dow Jones or S&P 500 index triggers a level one circuit breaker and the market is halted for 15 minutes. We reached that 7% threshold on the S&P just minutes after the open.

July 21, 2015

The Economy and a Look At Major Indices

The dust is settling around the technology giants like Amazon and Google runs. So let's see what we have going on in the major indices. Let's take a peek at the Baltic Dry Index too.

I was listening to a radio program the other day and the guest was a perma-doom and gloomer. The only bad thing he could come up with on the economy was that commodity prices are falling. He said the recent weakness in oil and copper are leading indicators of growth. He failed to comprehend that oil is traded in US Dollars globally and pretty much all of any particular commodities movement is directly inverse of the dollar. Yes, the dollar is rebounding lately. So there you have the reason commodities are falling off. I suspect the strength of the dollar is on the back of the FED's latest news on rates.

The recent gains put up on the Nasdaq Index are looking like the index is in need of a cooling off. Looking pretty overbought. Especially in RSI 2. Biotech IBB is overbought as well. On the other indices like the S&P we are at resistance levels. Small-caps (Russell 2000) are not even running much nor bullish looking. Something has got to give on these indices because they will mimic each other eventually. This is because they are mostly determined by futures contracts. Yes futures contracts control the market.

Let's look at some charts. First is the Nasdaq itself. Looking very overbought. Vertical actually!! Needs to settle down. Doji candle printed today. Another trend reversal indicator. I circled the RSI and doji.

Biotech IBB is pretty much an identical chart except it has broken out a little more and is hanging even more overextended. It's such a bullish chart breakout though I don't know how much of a pull-back it will see. Same goes for the Nasdaq. I very well could be wrong and everything rips higher. Technically everything looks due for a pause atleast.

The Baltic Dry Index is running lately. I'm not convinced it is going to continue as it has had similar runs and corrections on trend. The trend is down. This could be the top of the downtrend as I drew on the chart below. We shall see shortly.

June 13, 2015

Rising Interest Rates Play: Short Treasury Bonds

I think it is time to short US T-Bonds. I'm going to give you the fundamental reason and show what the market itself is doing. I'm basing this thesis on the theory that when interest rates go up bonds fall. Maybe it really is that simple. The tricky part has been figuring out when the FED will start tinkering with rates. I think they might do it this year. I don't see anything in the latest BLS employment report to make me think otherwise. You could say headline unemployment of 5% is to high to the FED. Of course the real unemployment rate is higher because they bake the numbers these days. But still real, unreal, semi-real unemployment rates are falling. I say 3% unemployment is unrealistic given the situation we have been in the last 8 years. I think anybody who is intelligent realizes the old days of conceptual thinking about target unemployment rates aren't possible now. Yeah, we could have 3% unemployment in a bubble economy. Let's just get 40% of the economy devoted to financial services(engineering) and see what happens! Any way you look at it unemployment is falling. Maybe I'm smoking dope on this report but this says wages are rising.

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $24.96. Over the year, average hourly earnings have risen by 2.3 percent. Average hourly earnings of private- sector production and nonsupervisory employees rose by 6 cents to $20.97 in May.

For the next exhibit we have job openings. There are more job openings out there than there have been in fifteen years. There were over 5 million job openings in April.

Let's think about the gravity of the FED raising rates. Will a slight rise really matter that much? I think the banks can handle it. They will still be in a situation to prosper.

Finally, I believe the market itself is saying the top is in for bonds. Below is a five year chart of TLT 20 Year Bonds. The red arrow points to the spike top. A spike top or bottom is one of the strongest reversal chart signals. The top was tested in March and April. It was confirmed in May. The drop for bonds continued and we are in free-fall now. The stock TBT is a vehicle to short TLT. So the way I want to short is with TBT Proshares Ultrashort Treasuries. Any spike upward on TLT is opportunity to get longer TBT.

March 19, 2015

Proof The Dollar is Still Correlated With Asset Prices

Pundits will continue to go on CNBC and business new channels talking about how oil and asset prices are a function of supply and demand and even politics. We can continue to laugh at them with confidence. If you've read my blog for awhile you might remember Quantitative Easing and the Stock Market. You might even remember Why U.S. Stocks Will Rise in 2011. Those old posts just show that the FED has controlled asset prices. To some people that's old news but to others I suppose they will never understand it. Probably the hardcore Keynesians.

Today was another FED meeting. I don't care as much about the language of the meeting as I do the market's reaction. Boy did the market react. During the meeting the dollar index practically crashed and oil rocketed up. You can see the price of oil skyrocket around 1pm below in the ETF USO. In the next chart below you will see the dollar fall dramatically at 1pm also.
Furthermore, precious metals like gold and silver spiked today as well. Here is a chart showing gold.

I believe that without the news today crude oil was on pace to continue crashing. It had already reached the lows of 2009 and the technicals were pointing toward a strong breakdown of the chart. Based on the reaction in the currency markets I see the dollar weakening for awhile now. This is a clear "spike top" chart signal on the dollar.

The charts above are from my favorite trading platform Medved Trader. Jerry Medved was the creator of Quote Tracker which is no longer being updated and was scraped by TD Ameritrade. Check out Medved which is in beta and is free for now.

March 14, 2015

US Dollar Update

I've been bullish on the US dollar for sometime now and have been holding the dollar ETF UUP. Fundamentally with the rest of the world debasing their currency and cutting rates its not surprising to see the tremendous run we have seen in USD. I don't know how much longer this will keep up though. How are we in the US going to raise rates when the rest of the globe is cutting? The other thing is the technical side. Looking at the dollar index it has skyrocketed and is going vertical now. This can't keep up forever. I'm happy to trim off 3/4's of my UUP position into this strength on Monday. Selling 3/4's of the position will lock in the bulk of the 10% gains it gave me. I'll have a stop loss on the remaining shares.
It's very interesting to see the continued pressure the dollar strength has put on commodities, especially oil. Oil looks poised to test the lows of the winter.

September 24, 2014

What I've Been Doing And Looking At

Greetings from Bull Market USA. The bull market capital of the world. Where low interest rates reign forever! Wheeee! In all seriousness however, I don't think Japan's lost decade has much on our QE. We've done better in my opinion. A few years ago everyone was predicting something along the lines of a Japan post asset bubble collapse stagnation. That is what they had in the 90s. Our true collapse was really in the wake of the tech bubble bursting in the year 2000. Atleast when it comes to the economy and equites. Yes, that was the secular stock market bubble that had been going since the early 80s. So I don't think comparing Japan and the USA was really apples to apples anyway. The other expectation Austrian economists had was serious inflation following QE. There was definitely some inflation as evident commodity prices but the dollar inflation seems gone now. Just look at the gold price. Gold and the dollar are always completely inverse. Gold is still crashing. I'm not sure what is going to happen from here.

History would say that if rates stay low for a long period of time there will be significant inflation ala the 70s inflation. Only Paul Volcker could stop it when he effectively let the market set rates at 20%. Could you imagine that today? So far things are going pretty well with the macro here. Doesn't hurt to be hedged though.

To me a good hedge on low rates is to be long precious metals.  I actually bought some more silver bullion recently around $21 an ounce. I got some Engelhard Silver Rounds on Apmex.com. I've always been pleased with my orders with them and I recommend them. They are one of the top 2 respected online metals dealers. So far I have Silver Eagles and the Engelhards. I'd like to get some gold Krugerrands soon and some Palladium.

I longed some emerging Asian stocks via the Fidelity Emerging Asia (FSEAX) mutual fund in my Roth IRA. I like the Goldman Sachs Emerging Debt Fund (GSDAX) also and have it on my watchlist along with the I-Shares International Real Estate Fund (IFGL). All of these funds have low expense ratios and similar or better performance vs their benchmark index.

High Yield Stocks
I also have some high yield equites on my watchlist. Whether stuff keeps falling or not these look good to me too. The first is my favorite REIT. It's not one of those sketchy adjustable rate mortgage REIT's or anything like that. Those mortgage REITs are going to blow up when rates go up. There's probably a reason they are all yielding 9 to 11%. I like these simple ones.

One like Sun Communities (SUI) which is just mobile homes and RV's that have great cash flow. Sun has increased the dividend consistently and currently is yielding around 5%. Shareholder equity has been growing the past couple years along with revenue and earnings. The chart is a breakout too.

UMH Properties (UMH) is the second REIT. UMH is yielding 7% and has a consistently rising dividend history along with revenue and earnings. This one has a smaller market cap at just $215 million.

Another high yield stock I like is Energy Transfer Partners (ETP). This is a diversified natural gas pipeline company that also sells gasoline and runs retail convenience stores. ETP's current dividend yield is 6%. The PEG ratio (price to earnings growth) is a very nice .69.

April 4, 2014

Interest Rates and One Stock

As far as macro trades go there doesn't seem to be anything more certain than the fact that interest rates will eventually rise. The FED has said they will raise rates when they like the employment figures. Unemployment rates have been falling across the country and to my knowledge the most recent rate was between 6-7% nationwide. My state of North Carolina is now down to about 6.5%.
A few years back I was almost certain that the FED's unprecedented low interest rate environment was going to spawn serious dollar inflation. Something along the lines of the late 1970s through early 1980s inflation that only Paul Volker saved us from in the early 80s. One of the reasons I feel less concerned about massive inflation is the falling price of gold. To see the true value of the dollar you only have to look at gold. Rapidly rising gold means the dollar is falling and vice versa.
Now to the play. The only place rates can go from here are up. The timeframe is less certain but the fact they will go up is clear. When rates go up bonds go down. The simple trade is to short long-term Treasury Bonds. The Proshares Ultra short US Tresury bonds ticker TBT is a vehicle. I'm not going into this trade tomorrow or the next day or even next month. But some day this will be a good trade.
LoJack Corporation (LOJN)
As I am typing this we are in the middle of the tech bubble it seems. I probably wouldn't touch Facebook with a ten foot pole. I noticed this stock LoJack LOJN awhile back when they reported their 4th quarter. 4th quarter revenue had risen 20%. The thing I like more is that they gave guidance of next full years revenue growth to be 8% to 10% year over year. The business is simple. They help people recover stolen cars and do car security. It's a small company too with just under a $100 million market cap which is good. The market still isn't fully valuing this companies revenue and earnings growth. The stock is currently at 5.60. They should grow earnings atleast 25% a year but the current PE is just 16. Foward PE multiple is just 13!! This is if they just do $.43 EPS for the year.

December 28, 2012

Some Cool Economic and Market Videos

Economic discussion on currency and gold from the most unique economics blog on the internet. Below is a short talk about market cycles, bubble jumping and the challenges of pure investing. The video quality is bad so just listen to it. Part 1 Part 2 Part 3

July 29, 2011

Quantitative Easing and The Stock Market

As you may know it is widely hypothesized that quantitative easing has contributed to the rise in asset prices the past couple years. Here is that in pictures.

click to enlarge

I think in the near-term any QE3 would probably more than likely continue to lift assets. I find now that getting a grasp on major economic trends locally and globally can make industry and equity selection much easier as well. As any QE continues stocks and commodities will rise especially metals like gold and silver. Same dance, only a new song.

April 13, 2011

Macroeconomic Stock Plays

I have been writing a lot about macro trends from monetary metals like gold and silver, oil to rare earth element stocks. Outside of the precious metals I haven't included that many individual stock picks. So, today I'm going to look at a couple of stocks.

Rare Element Resources (REE) mines for rare earth elements and gold. REE has a market cap of only $568 million at yesterdays close of $13.17 a share. Their Bear Lodge property looks to have a substantial amount of rare earths. I think this major is a good addition or alternative to other majors like Molycorp (MCP).

If you are interested in rare earths here is some information from the US Government Accountability Office on rare earths in the defense supply chain. One interesting tidbit from the report is that once a company gets the capital to begin a mine it can take from 7 to 15 years to get a property fully online due to regulatory procedures.

This next stock is currently my favorite setup at the moment. It is a natural gas company called Union Drilling (UDRL). While there is roughly $200 million in net tangible asset value and only a $237 million market cap I'm more interested in the chart play. The $10.40-$10.50 area has become a resistance level and as it stands today it is still consolidating around these levels. This is bullish consolidation currently and I see UDRL heading higher if it can print $10.61.

I expect a significant move higher either today or the next couple trading days.

A Final Thought
I believe that a top down approach continues to be one of the best strategies in this current environment. I want to continue to look at the oil and gas drillers, commodities and the precious metal miners. The writing has and should continue to be on the wall in regard to these areas outperforming.

March 4, 2011

There's Still Time To Buy Commodities

I want to talk a little about the macro situation in this article. More importantly I want to share my thoughts on crude oil at the moment. I also have a silver stock that looks interesting.

I won't go deep into the thesis behind the bullish case for commodities because I talked about that before. I still think it is important to be allocated in hard and soft commodities at this time. There is going to continue to be "dollar" inflation and this should allow certain assets like stocks and especially commodities to continue higher. It's essentially a Cantillion Effect. The rise in prices we have seen across the board really can't be totally explained otherwise.

Commodities Gains

Crude Oil At The Moment
Oil looks particularly bullish fundamentally and technically still. In the big scheme of things it won't be good at all if oil takes off like it did in the 70s or 2008. Some of you probably know the story from the late 70s but if you don't there was a severe oil crisis. There was also very significant inflation that was only struck down by Paul Volcker getting interest rates up to a whopping 19%. This saved the dollar but it also brought a recession.

Oil has gotten particularly volatile lately. Part of this is uncertainty about supply following the revolutions. There was a news story about what might happen if Libya and Algeria shut down supply.

Technically, there has been some congestion following the big spike day. It looks like bullish consolidation. It's starting to be confirmed as there was just a pop out of it. If we continue hitting new highs I think there may be some more explosive momentum. There definitely is more upside.

3 month chart of crude oil

As far as holding oil for any time period the best instrument is the futures themselves (CL). The US Oil Fund ETF ticker (USO) is a terrible way to play oil. It's because of the way the contracts roll. The ETF must buy oil futures contracts and sell them before expiry. As a result there is decay in the ETF. The natural gas ETF (UNG) is a good example of the dynamics of these ETFs. Natural gas has been pretty flat but the ETF has performed even worse because it bought the expensive monthly contracts and had to sell them cheaper right before expiration.

I think United States 12 Month Oil (USL) holds longer contracts than USO. USL has outperformed USO over long time frames.

Teucrium WTI Crude Oil Fund (CRUD) is also another alternative as it tries to buy contracts on three different maturities to offset decay.

Silver Mining Stocks
Here are some ideas in the mining sector. As silver continues hitting new highs I like this Canadian junior miner Aurcana Corporation (AUNFF) here. It's a smaller company and in the penny stock range. Some other larger market cap names that are worth a look include Hecla Mining (HL), Silver Standard Resources (SSRI) and Pan American Silver (PAAS).

January 19, 2011

Why U.S. Stocks Will Rise in 2011

I think it is highly likely that the U.S. stock market will continue to put up significant gains in 2011. The reason is nothing complex. In-fact, it is just a simple phenomenon that has been going on since the 2009 lows in equities and continues to lift asset prices at this moment. It is quantitative easing and the Federal Reserves commitment to attain significant dollar inflation. Anything else one hears to the contrary is just chicanery.

But before we delve into this and the future let us look at a similar economic situation and how stocks performed in those years. In the depression immediately following the crash in 1929 banks were failing, assets were deflating and commercial credit was collapsing.

But what happened to stocks all through the 1930s despite high double digit unemployment? Stocks went up!

The big catalyst that allowed for the rise in stocks was that we went off the gold standard in 1933. This depreciated the dollar significantly and you can even see it in the CPI below.

click to enlarge

The same thing is going on now with the dollar and equities as it did in the 1930s. Bernanke has even admitted publicly that the goal of QE is to raise stock prices.

Final Thoughts
The macro picture hasn't changed much this past year and likely won't for some time. The FED will continue to try and prop up the debt bubble by rolling cheap money. Stagflation remains one of the best case scenarios. Money will run to the best assets while the bad assets continue to deflate. So, I see major commodities like oil and agriculture continuing to do well while real-estate remains flat. And of course metals like gold and silver will do well. This is all nothing new of course but I think it is going to be the status quo for many, many months to come.

November 10, 2010

Quantitative Easing 2 Explained Video

This funny Xtranormal cartoon has been making its way around the internet.

May 4, 2010

My Movie On The Stock Market

This site xtranormal.com is pretty neat. It only took me about 15 minutes or so to make this conversation on the stock market movie.

February 25, 2010

What Can't Be Hidden

A Seriously Struggling & Flawed U.S. Economic Model
There are a lot of negative things going on economically in the U.S. One of them being the fact that one in four homeowners are underwater and home values and retirement account values are two of the most important determining factors of consumers purchasing behavior. We are in an economy where over 70% of GDP is consumer spending. The retirement accounts are up for now but valuations are about fairly priced at best on US stocks because right now they are discounting an economic recover probably more along the lines of 2001 than 1931 after our Great Depression or 1990s Japan. These people think the 2000s weren't a continuation of the bubble!!? Hello! Greenspan and the housing bubble. The 1990s and 2000s can be corrected by a 2 year recession we have just had?!! I might even argue that the bubble actually started in the 1980s and even earlier with the consumer leveraging up on credit cards and a long standing government induced housing price bubble. The housing based economy is set up on a phony premise of everlasting cheap gasoline and fuel prices, endless supply of credit and perpetually rising home prices.

International Turmoil
There is a real threat of sovereign debt defaults like what we saw with Iceland just recently. Greece, Spain, Dubai and Japan are at risk of default and possibly eventually other major countries. The stock market hasn't realized or priced in additional defaults. That could start a domino effect. I was reading about the Asian currency crisis in the late 1990s. It all began in the small country of Thailand (then seemingly insignificant) and spread to South Korea, Japan, Brazil and Russia. Are Iceland and Dubai like a Thailand was then?

The strange thing so far I'm reading is there was lack of banking supervision prior because they were actually exploited by government giving public loans disguised as private and major asset bubbles were busting around this same time as well. A lot of these Asian countries had less than 30% of GDP comprised of exports which in my view gives some clout to the Austrian economists on what is possible in none Latin American economies and even ones as big as the U.S. There have been a lot of currency crisis in Latin America because of the cyclical nature of their economies among other reasons. In my view what happened in Asia in the 90s and in Iceland just recently shows that currency crisis are possible in a large country like the United States. It's hard to envision a scenario for the US for rates on our bonds not to go up and assuming the economy must continually be jump started and defense spending stays the same there could be serious trouble for the dollar and a following of the rest of the Western nations.

What good is deficit spending and artificial GDP growth like in China where there are empty cities if you still have to pay the piper for decades of juiced excess like here in the U.S.?

When it comes to the possibility of a continuing rise in stock valuations and a lasting improvement "absent stimulus" in the U.S. economy and even China's the burden of proof is on you bulls.

Some Links to Think About
"While deficit hawks have long warned that policymakers need to curb deficits and debt, the new wrinkle is that the U.S. budget deficit picture has worsened so much largely because tax revenues have fallen off so sharply that the government is likely to reach a crisis point much sooner than under past forecasts."


"The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt."


What Happened To The Green Shoots?

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Delusions of Grandeur

Is it actually possible that the green shoots were merely the result of short-term stimulus and inventory shifts by companies? Is it possible that the trajectory of GDP could go sideways or fall for years or even a decade or two after a serious unprecedented structural shift in the economy?

Bernanke said today many times that the current budget deficit is unsustainable. He also said that deficits of over 3% of GDP are unsustainable over time. These two facts would be troubling but lawmakers and the FED believe they are temporary because solid economic growth will shortly return.

All scenarios revolve around the premise of a solid recovery returning. It has to because we are facing a falling tax base and baby boomers retiring. I'm afraid a stagnant economy like Japan in the 1990s will not even be considered by lawmakers when it comes to spending programs and balancing the budget. But I guess why would it? The U.S. has produced one of the greatest economic track records ever in history. Even more rare and impressive about it is the history of economics on the whole when it comes to other countries is often a very dismal one.

Whether or not things get under control shorting treasury bonds and the dollar should be a good long-term macro play. Of course it is difficult here with the potential for at any time a panic rush to dollars but if there continues to be a flock that creates a mini bubble shorting the dollar seems like a no brainer because at the least it will fall from debasing.

Some articles and videos I have come across recently

Deathbed of Keynesian Economics Will Be in U.K.

Jim Rogers: The Dollar is Doomed

November 16, 2009

Warren Buffett's Big Bet With Burlington Northern

So, I imagine everyone knows Warren Buffett bought Burlington Northern recently and the media has spun it as wholly positive and a bullish bet on the economy of the United States. I'm going to look at this in a different angle and in a more skeptical and realistic fashion. Buffett says,"I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. It’s a bet on the country, basically."

Let's start with the good things. I think it was definitely a good buy for the long-term. A classic Buffett moat company. A safe, smart move. But I think this could be a clue to the macro as well because Buffett is very keen on the macro economy. I'm not sure that I buy the argument that this is a big bet on the economy of the United States though. Right now the railroad gets only about 30% of its revenues from shipping consumer products. "Its next most important segment was coal, followed by industrial products like farm equipment, lumber and chemicals. It also hauls corn, wheat and soybeans, much of it exported to China."1

The media spin on it however is it's a bullish bet on the economy. I think it is a bet on future trends. None of them on a stronger United States economy. It just looks more like a bet on commodities, the fact that the dollar will be very weak, that people will be alive and eating in the future, the fact that oil prices will sky rocket over coming decades and that Canada will probably be stronger than the United States economically.

What is the way to ship if oil exceeds $140 a barrel? It sure isn't trucks or planes. The fact that rails take away from them doesn't seem particularly good, just that they will. This may be a bit of a stretch but buying a railroad seems more like a doomsday economic hedge than a hope that the economy will be strong. Shipping coal and necessities is pretty much a given. And you can't ignore a healthy demand from Canada next door.

Where's the leveraged bet on the consumer? Are you telling me from the extremely low valuations from the biggest stock market crash of his career and the worst economic crisis since the early 1900s that Buffett couldn't find a company any more correlated to the consumer? This is supposed to be an "all-in" bet right? Remember the consumer is the U.S. economy with consumer spending comprising over 70% of GDP. If the consumer does well so will the economy. And this railroad is the best deal he could find to "bet" on the economy? Give me a break media.

A bet on the economy is buying a company related to the housing industry or a service company.

I heard Buffett say he thinks this country will prosper in the future. Prosper isn't that strong a word though really. Buffett is an extremely candid guy to say the least. Why wouldn't he have said do extremely well or better than ever. He was saying this in the heart of the panic of 2008 and 2009 but I think one has to be skeptical of the context of those statements possibly because he is one of the most important statesman.

A low dollar and high fuel prices makes railroads an alternative for shipping to Canada and across the country. In that case it is a strong bet on Canada's economic future. I think that Canada will possibly be doing better than the US because they have the oil, healthier banks and financial institutions and more stable currency.

1. Yahoo! news

another source

full disclosure:no position in BRK-A,BRK-B,BNI