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This is unusual for you to open an issue before they announce. What's your reasoning Nick?
Good basic materials will benefit from inflation and US$ devaluation. I had not thought to invest in paper, (IP), until you mentioned it with AA and PD about a year ago. I've just started accumulating it earlier this year and will add to this position between 35-36. IP bottomed in 2000 and has a well defined up trend since that time.
I think long term investors can expect 12-15% from PD, AA and IP over the next 3-5 years and should be able to enhance that return by buying dips as they occur. I'm still expecting a great opportunity for an entry point sometime next year and will be very conservative buying before that time.
Nick, Bill - Nice trades on KO.
On AA I'm waiting for 22-23 range as my sites are set much farther out and I'm just looking for a good place to add.
Agreed.
Quick report on metals and the dollar...
As expected Gold has been weak for the last couple of months, (US$ has been strong). I don't think this is the bottom but many gold stocks are down 20-30% since then. You can likely watch NEM for a drop into the high 20s as a good indicator of the bottom.
http://futures.tradingcharts.com/chart/GD/83
Silver is still range bound and will likely experience some continued weakness near term. I'm watching SIL as it appears headed for the lower part of it's trading range. A one year chart is most interesting for SIL.
Copper bottomed in 2001 and has been consolidating since that time. The price has been range bound since then but will break out to the upside in the next year. PD is very strong now so I'll wait for a pullback into the mid 30s to do any additional buying.
http://futures.tradingcharts.com/chart/CP/73
The US$ is up but will hit a trading range of 98-100 over the next few weeks. This will be a good time to short as it will likely be lower than today next spring.
Talk to you all at the end of the day.
T4 - Attack on the Governor's office.
Yes, the deficit is partly funded by the trade imbalance but you have to be careful as you're close to inferring that the government creates something with the deficit. The government is in the redistribution business.
BnB...please review the following links. You'll find that even during the best year there was never a surplus. The government reports are the best place to start. The key is coming to an understanding of what the government refers to as "intragovernmental debt". When the Fed reports the deficit, they don't report intragovernmental debt.
BTW, I feel the same way you do about Bush, but I happen to feel the same way about Clinton. Since I'd have to go back to Truman to find a President I respect...you should take these observations for what they're likely worth...:).
Start here at the Treasury, you'll notice that I try to use the government's own reports.
http://www.publicdebt.treas.gov/opd/opdpdodt.htm
Then go to the detail at GAO
You'll need Adobe Arcobat reader for the big GAO reports.
GAO uses cookies so I can't give you a direct link but here's the instructions:
Go to: http://www.gao.gov/
Under "Other publications" Click on the link: Financial Report of the US Government.
You'll see reports from 1997 to 2002.
If you have questions, I'll be glad to answer them.
Here's a few links to Web discussions. I'm not recommending the POV expressed, (well maybe the first one), just giving you a starting point.
http://www.washingtonpost.com/wp-srv/politics/special/budget/stories/op020598.htm
http://www.flash.net/~bob001/trustfnd.htm
http://www.gulftel.com/homefree/p9.htm
http://www.accd.edu/pac/philosop/phil1301/budgetsurplus.htm
http://www.yellowtimes.org/print.php?sid=836
If you're interested in some change you can review this link.
http://www.concordcoalition.org/
So why do the government numbers not indicate inflation? Because they only measure the items that it pleases them to measure. They do the same thing with debt. We overpay Social Security today and it's used to pay down the deficit. But when Treasury talks about a record deficit of $455B, they don't mention that the real deficit is several hundred billion more than $455B. WCOM - they were such pikers. 11B indeed. We throw that much away twice every week.
In the 5 minutes it took me to write this, we went another 2MM in debt.
And, for anyone who's not read my opinions from the other board, I'm deeply concerned about this issue from an investing point of view. I view the chief investment driver as available currency - measured by M2. If this is growing faster than the economy - something(s) are growing in value. It may be things we like, (housing / stocks), or it may be things we don't like, (health insurance / groceries / interest rates), but prices will tend to move upward.
If instead M2 begins to move downward, the stuff mentioned above will tend to go down in price. Not everything will go down in price but the tendency of prices will be downward and the tendency of the economy as measured by GDP will be downward.
In the second case, the best thing to own will be the primary investment - cash. This is the Japanese scenario. They've learned this lesson well over the last 14 years.
M2 has expanded in the last 12 months by 7.29%. It had expanded at 6.79% in the previous 12 month period, (July 01-June 02). The percentage difference between this number and real growth presents a case for inflation. I'm now struggling with the idea that this money, (about $500B), may not really be available to cause inflation as it may be siphoned off to foreign entities in the form of the trade imbalance which just happens to be about $500B. But, of course, these foreign entities are re-investing all of this money back into the US in the form of bonds, buildings and stocks which of course...causes inflation.
Now, here's the interesting part. We're continuing to build M2 and the trade deficit at an unsustainable rate and creating a serious economic imbalance. What happens if these good investors become disenchanted with the US as an investment? I think it's deflation.
The more I know about this issue the more I realize how much more I need to understand. I sometimes feel like I'm in an X-Files episode...alien economics.
This is an excellent point Nick. I was discussing this issue with family last night as one of the extended family is currently selling their out of town house to move in town, (difference of 7 miles...:)...we have different sensibility here regarding distance).
The inevitable, "is this the top of the market" talk came around. I had two observations:
With interest rates this low one had to look at the real monthly cost after taxes and principle paydown and consider adding 10-15% per month to the payment as it may be required to pay down the price premium. If the monthly cost is still acceptable, the house is affordable.
Don't move into a house you plan to keep for less than 7-10 years. Three to five years from today could be a deadly time to be a seller.
If housing continues to move up in price or is flat, the extra payments will turn into a bonus.
As an example, a $200,000 loan at 6% costs $1200. per month. if one adds 15% to the payment making it $1,380. the paydown after 10 years is $62k. At $1200. it's $32k.
I think he's made up so many G-speak scenarios he's confusing himself now. My local paper reported this from the Associated Press:
"Federal Reserve Chairman Alan Greenspan told a House committee that he still supports tax reductions to spark the languid economy. But he said the cuts should be paid for with spending reductions or tax increases..."
LOL!!!!
Tax reductions paid for with tax increases.
I'm on the floor, can't get up!!! LOL!!!!!
We're any of you ever instructed as a child to just ignore some of the crazy or contradictory things that an older relative said because "it will just hurt [insert relative name] feelings"?
Shhhh, don't say a word to Uncle Greenie about this.
Here's a pointer to the most recent free COT report.
http://www.commitmentsoftraders.com/cotp1.htm
Small specs are still more short than large specs in the 10 year bond. This can change radically over a week's time in a fast moving market so we'll just have to wait. The Commercials are a good indicator in most markets but not in bonds as they may have very sound reasons for being long that have little to do with the expected direction of bonds.
As I've said before, it's not a matter of if, just when.
You may be correct Court. The 10 year bond will need to fall into the 111-112 area before it's really significant. Also, don't forget that the Fed has said they will consider extraordinary measures to keep bonds from crashing.
http://futures.tradingcharts.com/chart/NO/W
A falling long term bond market is good news for those of us invested in metals as a rising yield curve, (difference between short term and long term rates), portends inflation and inflation drives up the price of metals and all other commodities.
This is excellent thinking on the part of the politicos. Raise the most confiscatory tax they can touch. Make sure the poor pay the greatest percent of income for the state's folly. Please - don't lower costs, that would make too much sense.
Here's a couple of notes from Adam Hamilton, (who I've not referenced in a while). This is a such a smart evaluation of the American psyche.
There is no special valor in speculating and no shame in not speculating. Some of us are hardwired to be tolerant of big risks and some are not. Our modern American culture sends mixed messages about risk, confusing the issues for many. For example, Americans tend to greatly over-insure themselves against every conceivable low-probability risk. Americans also seem to want a Big Brother government to protect and insure them against all of life's countless uncertainties. All these common traits are signs of very low risk tolerance. Yet, at the same time, most Americans willingly choose to become big leveraged speculators, making giant macro bets about future market prices at staggering levels running a half-dozen times their annual incomes or more! A house mortgage, a debt-leveraged speculation often undertaken at 5x to 20x margin, is phenomenally risky. This magnitude of debt leverage makes options trading look like playschool, yet paradoxically most Americans view options speculation as hyper-risky but macro real-estate speculation as perfectly safe! These kinds of striking inconsistencies in cultural risk tolerance tend to obscure risk issues.
Oops, found another bug. You can double click the "Submit Post" button.
Hey programmer dudes, add a delay after the on click event.
I've a great respect for BG but blaming greenie for this is way too easy. He's the boy with his finger in the dyke. We need to look in the mirror.
I've a great respect for BG but blaming greenie for this is way too easy. He's the boy with his finger in the dyke. We need to look in the mirror.
Nick, on these we completely agree...AA, PD and IP. It will be difficult to lose money on these over the next several years. As the US$ goes down basic materials will go up. Even if they don't run the companies as well as they should, inflation will give them a nice boost.
And now and ad: Deflation is such a crock!
We return to our show...
Thanks for your kind words Elena. After 20+ years of marriage when she counts to 3, I'm a careful listener, good note taker and fast action planner...and like Court, I'm soooooo out numbered so these traits have served me well.
As for the Chinese I take a very long view regarding their culture and find nothing overly interesting in their new love of freedom. I suspect that while the people are fantastic the government will find a way to screw up an almost perfect opportunity. I'll be investing in Japan and foregoing any investment in either China or Korea.
As for us, we've gone from GW to gw and from Thomas Jefferson to William Jefferson. It's too sad a joke to do with a straight face. Please name one honorable person in high political office!? Maybe George Tenet who fell on his sword last week for these idiots.
Like Gray Davis we are the masters of being the lesser of two evils. It will speak volumes to see if the people of California select a cartoon hero to be their next Governor. How long can it be before we elect Sponge Bob as President and just draw him winning the war in Iraq and opening the Baghdad Crusty Crab.
OK, I've gotten a bit too bitter tonight so no need to let me know about it.
I like this deal for Sears if they will cash out of this business this year. I believe Citi and JPM are moribund. It matters little how much more debt they control in their race to the cliff.
They have stabilized. The decrease in jobs each month is the same as it has been...:). Less is more my friend.
One of my favorite movies of the last few years is "O Brother Where Art Thou". There's a scene in the movie where dimwitted Delmar walks into a river to be saved by a revival preacher. After being dunked under the water he exclaims, "From now on boys it's the straight and narrow for me. The preacher said all my sins is washed away. Come on in, the water's fine".
This is the level of acuity I expect from 99.9% of politicians and I'm almost never disappointed.
That's just a little denial creeping up on you Court...:)
Court...this should be 400 billion AND this is after they've stolen several hundred billion from the social security trust fund, the government retirees trust fund and the ANY other fund that is currently over funded. And don't forget that we're borrowing another 500 billion from foreigners to finance our trade deficit this year. In total it is well in excess of 1 trillion dollars. About $4,000.00 for every man, woman and child in the US. And that is just this year.
Also, WMT is currently very resilient. This market will fail based on consumers giving up, not business investing going south or business profits not quite making it...heck, we've been watching that movie for 3 years. When the average American spends less at WMT, that will really spell trouble.
At this point I would not bet against this being a up year. Nick, you've been incredibly accurate. I just don't believe the bottom is in, but likely it will be 2004.
The only thing I'm sure of is that as soon as we're all sure the trend is over it will extend. Bears are all potential buyers, bulls are just potential sellers.
I have a chart of the bull market in bonds on my wall to remind me just how wrong I can be about market tops. I thought it was done in 1998, luckily, I didn't know enough about bonds in 1998 to short them...:).
Anyone who's listened to me rant about silver over the last 3 years knows that the only great thing about my timing in this market is that I diverted money from the stock market. But I have a lot of patience here and the commodity market is going to be very real after the next downturn...or so I think.
Embedded charts!!! This site has skills - not to mention the chart master. Thanks Mike.
This is an interesting comment from you Nick. It had thought we were quite separated in opinion regarding the market moving forward but from this statement - generally I think we agree. One should be very cautious today and moving forward we should see a sharp sell-off. The difference may be that my sharp sell-off is a new low and yours appears to be a re-test. I think the dollar will have made additional critical downward moves by that time and the top of the bond market will be apparent by then. I have begun shorting the market since early this month and will be fully leveraged for a down market by mid-August. This likely means it won't come until October, (smile).
Martha says she had a standing sell order at 46...:).
Court, I think the problem is more deep than you describe. I'm not talking about a person who can complete 4+ years of college and specialize in a field of work or has the ability to start and run a sucessful business - I'm talking about the large group of people that depend on the refinement, movement or retailing of some product to make a living. By all accounts, the trickle down effect has a massive offshore pipe and is not working well for this large group of people. We can characterize this issue as protectionism but the characterization sheds no light on an appropriate answer. After all, these are people, not accounting entries. My fear is that if it gets large enough, the middle class will begin to lose ground. In fact, I think they already have lost a great deal of ground if we discount what part of current prosperity is borrowed.
That's it, don't cut and paste more than alphabetic text from MS Word. Time to haul out a good Unix editor...:).
Not that simple...one more test.
‘hello world
hello world…
‘hello-‘world
Ohhh...looks like I exposed a bug in the way the board translates some html characters...I'll avoid that one in the future.
It appears to be a leading single quote character that offends the application...as in:
'hello world
Ron - I was going to make the same observation. And of course the bigger question is now that we're at the end of the "America is a useful borrower / spender", cycle, and are about to move into the "America pays the piper" cycle, who will we pay? Since we've exported many of our jobs - what is it that middle America will do to make all this money to repay personal and government debt WHILE a large section of America begins moving into retirement. Sounds little better than slavery to me.
Really just a string of rhetorical questions / remarks but if there's to be any real debate in the upcoming election, this is the issue we need to talk about. Are we going to continue to ship our jobs off-shore now that the outcome of doing this is obvious. If we decide that we want to internationalize the ownership of America that's something I'd really like to hear politicians sell…he, he, he.
As I said in my post from last night - a trillion in trade debt from ‘83-'97, another trillion from ‘98-01 and another trillion in 02-03. Do we need to move it up so we're borrowing a trillion a year in trade debt before we realize that we've mortgaged the country?
The magnitude of the stupidity is astonishing.
And my last post regarding a state I left 7 years ago...and not a day too soon.
http://quote.bloomberg.com/apps/news?pid=10000039&sid=ai2e6hdnVvzk&refer=columnist_mysak
And a couple of notes...
The US$ is approaching an area where it can again be shorted - Gold and SF, likely the Euro and later the Yen. Prudent Bear also has a leveraged fund. I'm not selling additional dollars yet, but it's getting close to where I'll consider full investment again. It's up 4% since selling 2 months ago.
Gold - I've been partly out for about 2 months. The direction is still down, a weak stock market will not help as it will move long term bonds higher, (interest rates lower), and gold loves a yield spread but when it moves later this year, you'll blink and gold will be at $400. The next move will not come up short. Gold over $400 will be a magical number for the producers as everyone who knows nothing about gold will be buying. It will be a really great time to take some profits.
The Fed - Will not let interest rates just start moving up. I can't get in the mind of the green guy, Sir Rants-a-lot but bonds will not go down without a fight. A big fight.
And lastly, with all due respect to Mike and Nick, the NASDAQ has been trending higher against the DOW and S&P since the low last October. While it looks like it's blowing off right now, as long as it's trending higher on average, the overall up trend should stay in place. I'm not sure what it means other than that risk adversity is not the current name of the game. I like it when the gamblers show up and I'm not so sure their done spinning the wheel and throwing dice.