Skip to comments.Dont Be Fooled by Inflation (Makes cash riskier than stocks, Peter Schiff)
Posted on 05/08/2009 6:33:17 PM PDT by sickoflibs
Strike up the band, boys, happy days are here again! Recently released short-term economic data, including unemployment claims, non-farm payrolls, home sales, and business spending, which had been so unambiguously horrific in February and March, are now just garden-variety awful. With the Wicked Witch of Depression now apparently crushed under the house of Obamanomics, the Munchkins of Wall Street have sounded the all clear, pushing the Dow Jones up 25% from its lows. But the premature conclusion of their Lollipop Guild economists, that the crash of 2008/2009 is now a fading memory, is just as delusional as their failure to see it coming in the first place.
Once again, the facts do not support the euphoria. Over the past few months, the government has literally blasted the economy with trillions of new dollars conjured from the ether. The fact that this "stimulus" has blown some air back into our deflating consumer-based bubble economy, and given a boost to an oversold stock market, is hardly evidence that the problems have been solved. It is simply an illusion, and not a very good one at that. By throwing money at the problem, all the government is creating is inflation. Although this can often look like growth, it is no more capable of creating wealth than a hall of mirrors is capable of creating people.
We are currently suffering from an overdose of past stimulus. A larger dose now will only worsen the condition. The Greenspan/Bush stimulus of 2001 prevented a much needed recession and bought us seven years of artificial growth. The multi-trillion dollar tab for that episode of federally-engineered economic bullet-dodging came due in 2008. The 2001 stimulus had kicked off a debt-fueled consumption binge that resulted in economic weakness, not strength. So now, even though the recent stimulus administered a much larger dose, we will likely experience a much smaller bounce. One can only speculate as to how much time this stimulus will buy and what it will cost when the bill arrives.
My guess is that, at most, the Bernanke/Obama stimulus will buy two years before the hangover sets in. However, since this dose is so massive, the comedown will be equally horrific. My fear is that when the drug wears off, we will reach for that monetary syringe one last time. At that point, the dosage may be lethal, and the economy will die of hyperinflation.
As always, the bulls fail to understand that investors can lose wealth even as nominal stock prices rise. As a corollary, the bearish case is not discredited by rising stock prices. While there are some bears that mistakenly cling to the idea that deflation will cause the dollar to rise, those of us in the inflation camp understand that the opposite will occur.
In the meantime, stocks are not rising because the long-term fundamentals of our economy are improving. If anything, the rise in global stock prices is due to investors realizing that cash is even riskier then stocks. The massive inflation that is the source of the stimulus is essentially punishment for those holding cash. To preserve purchasing power, investors must seek alternative stores of value, such as common stock.
It is important to point out that despite an impressive rally, U.S. stocks have substantially underperformed foreign stocks. In the past two months, while the Dow Jones has risen 30%, the Hang Seng and the German DAX have risen by over 50% in U.S. dollars. Commodity prices are also rising, with oil hitting a five-month high. And gold is shining as well, with the HUI index of gold stocks up 30% during the past two months, and 2/3 of those gains occurring in the past month. If this rally really were about improving economic fundamentals, gold stocks would not be among the leaders. Further, during those two months, the U.S. dollar index fell by 7%, with commodity-sensitive currencies such as the Australian and New Zealand dollars surging 20%.
To me, the relative strength of foreign stocks and currencies indicates that perhaps the global economy is not as impaired as many have feared. It has been my view all along that after the initial shock wears off, the world will be better off - once it no longer subsidizes the American economy. The shrinking U.S. current account deficit is evidence of this trend in action. Renewed strength in foreign stocks and weakness in the dollar may indicate that not only is the world decoupling from the U.S., but benefitting as a result.
So let the Munchkins dance for now. But remember, the Witch is not dead, only temporarily stunned by an avalanche of fake money.
If you realize both parties in Washington think our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus who is going to get elected in Washington and cut a few taxes and spend a few trillion and jump start the economy, and get our lost money back, this list is not for you.
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Buy stocks, but oil and gas ETFs, buy the Euro and Swiss Franc ETFs. then wait and watch you make all your losses back within 5 years.
Money Quote : "My guess is that, at most, the Bernanke/Obama stimulus will buy two years before the hangover sets in. However, since this dose is so massive, the comedown will be equally horrific. My fear is that when the drug wears off, we will reach for that monetary syringe one last time. At that point, the dosage may be lethal, and the economy will die of hyperinflation."
So buy oil and gas ETFs and the Euro and Swiss Franc ETFs.
This is a sucker’s rally for the rest. China and Asia’s economies might pick up and if the world economy picks up a little - oil is back to $4 a gallon.
you mean gas or oil?
> My guess is that, at most, the Bernanke/Obama stimulus will buy two years before the hangover sets in ...
We should be so lucky. I am afraid that 2 years might be optimistic. According to Forbes (print), Social Security is going into a deficit from FY 2010.
Why not buy physical gold? Seems like now would be a good time to buy some of it ...
Well...we're still gonna die...the prediction now is not for two more years though.
I think oil will go up and nat gas less.
Louisiana has a big nat gas find though recovery will be more expesive than usual. So oil yes and probably no on natural gas.
RE “According to Forbes (print), Social Security is going into a deficit from FY 2010.”
What about the lockbox? You mean they broke into it? Who had the key?
I thought everyone was...silver too.
“Why not buy physical gold? Seems like now would be a good time to buy some of it ...”
...physical gold is the only reason to hold gold...there’s no way I’ll ever buy a piece of paper saying I own gold stored somewhere....I buy gold to get away from pieces of paper...everybody should own a sack of gold&silver coins, a bicycle and an AK-47.
Come on Sick of Fibs. If ALGORE says there is a lockbox, I believe him. He has not benefits at all from the Global Warming scam. At least not much more than $100 Million.
I heard the Anchor Bots on CNBC today bemoaning the weak showing at the latest Treasury auction. The yield went up much more than planned. If the world economy is picking up, then the flight to safety US Gov bonds briefly enjoyed may be ending. In which case, the due bill for Obama’s spending binge will come much sooner than anticipated. I also got a chuckle when one of the Bots mentioned that the Fed might buy treasuries to keep the yield down. Sheesh.
They can't say HOW financial institutions are actually going to start lending and making money again. Who is going to be doing the borrowing when those who did in the past are now shown to be deadbeats or unemployed, with the remainder not wanting to borrow any money. The current business plan for most big financials is having Uncle Sam as voting stockholders.
They can't say how we're going to start creating jobs again, execept by trying to revive the former borrow-and-spend system that broke down and can't be revived.
They can't say how we're going to go through all of this housing inventory any time soon, much less have a building industry along with get homeowner's equity (i.e. net worth) back up. Are the unemployed and deadbeats going to start buying all the houses at re-jacked up prices?
They can't say what we're going to do with all of millions of square feet of commercial real estate.
They can't say what we're going to do with all of this consumer debt that won't get paid and the massive losses that will come with that.
They can't say what we're going to do about the destuction of our currency.
They can't say how we're going to pay the uncountable trillions of commitments in entitlements alone coming due in the next decade, nevermind the massive amounts of other spending that's heading over a cliff.
Etc. etc. etc. They just keep telling us that everything will get back to normal, but never give us the math.
> What about the lockbox? You mean they broke into it? Who had the key?
Thank you, that really made me laugh!
Certainly will be. And then we are screwed with an administration that is blocking drilling everywhere, not just offshore. And with Obama's "green energy" fantasy that is 15-20 years away at best, the American consumer is absolutely screwed. The only upside is, so will Senate Democrats in 2010 or Obama in 2012.
Back under Reagan both parties cut a deal to raise SS taxes beyond payments, which they cut (at least some.) So they actually tell the public the FDIC fund will lend the Treasury money and the Treeasury will give FDIC an IOU. Heres what gets me, those that say 1) SS has the money, 2) SS should have saved the money (government saved ???) , 3) so called conservative republicans that swear they paid into SS and so the future benefits are theirs, SS benefits are theirs like those tax cuts. (you see the problem here??)
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