Whither the economy?
Gold is at 20 year highs. Copper, platinum, zinc and nickel are at all-time highs. US growth is strong. US debt is sky-high. US personal savings simply not present. The effectiveness of debt in adding to US growth is negligible (interesting in that by cutting rates to encourage capital or other spending, you in fact do not succeed -- a worn out monetary tool where there has been too much capital available for too long). Inflation is increasing, but only really in response to oil/energy price increases, so far.
So where now? we have the perception that the dollar sucks and we should buy Euros or yen or yuan or whatever. But is Europe better off? The ECB HAS to raise rates this year and be more aggressive than the Fed ... so you go long Euros, right? But raising rates there will also choke off growth, which has been shaky all along. Higher rates could stab the property markets there in the whazoo, and encourage chronic unemployment.
Currencywise, the net is that Euros will likely be the hold for the next 18 months, thereafter as Europe begins to sputter, switch back to dollars.
But, oil, oil, oil..... There is really no need for the prices to be where they are. There is plenty of it to go around, but there seems to be a well-orchestrated scheme to boost prices that works. Saudi and the Gulf States are simply awash in capital. More money than ever. More than they know what to do with. You have a project, however crazy, you can get it funded. The US and European energy companies are all showing staggering profits (they claim it is just their margin as the prices go up getting relatively larger -- and that is true, but ignores what is a "fair" profit). So how will this impact the EU and US?
The US is going to have to start to wean itself from oil dependence ... starting with driving habits, heating habits and entertainment habits. No more driving 50 miles to see a certain movie, or play golf. Or 200 miles each way to ski. It starts to mean real money. Companies dependent on large V8 powered cars will have to move quickly to avoid catastrophe (good-bye GM). Gas will hit $4.00 (still cheap by world standards, but our mileage is less than half of world standards, too). We will see higher ticket prices at the airport. Politically motivated attempts to kill off wind farms (like those of the hyper-liberal Ted Kennedy to nuke the Vinyard Sound Farm) will be exposed as being AGAINST the public interest. Sooner or later, we will drill for oil in protected areas, and hitherto unfeasible projects like oil shale and oil sands will gain momentum (the US has the world's largest reserves of these things), bio fuel will feature front and center -- and the US can grow more agricultural goods than ANY other country on earth -- and green will change its color to something more practical ... that is, what had previously been seen as an environmental loony's ideas will be seen as prudent for the US.
All this is obvious ... but in terms of dollars and cents, what to do with money now? I have got to think that there is overshoot to commodity prices, but with China sucking up everything and anything they can get their hands on ... I can't be too sure. Gold should be somewhere in the 550 range, given broad historical ratios ... but seeing that in the gold/oil case, never has so few barrels of oil bought so much gold (or this was true at the 550 area, now at the door of 800, we are closer to being in line). So go long gold at this level? I don't think so. But sell what you already have? Nah, can't quite do that either.
Housing? Well any rudimentary analysis will show that virtually ALL and ANY of the increase in personal wealth since 2001 has been in property. Direct and 1:1 -- no doubts there, even though there is a real rebound in the stock markets. And that is also directly linked to the increase in personal debt and debt overall to fund it. Put another way, the Fed made money cheap, so we went out and "invested" in real estate, or refinanced. Then we took our new-found wealth represented by our now fabulously expensive houses, and bought stuff made in China (or large new SUVs that lined the oil sheik's pockets). Just look at the increase in value of Wal-Mart -- built on cheap-assed goods made elsewhere in the world.
From the Federal point of view, they cut rates to give money to develop China and borrowed from the Chinese to do so (they own the treasuries issued). Pretty clever from the Chinese point of view: "here buy my cheap goods, and I'll lend you the money so you can buy more." Kills off US competition and everyone else's too. Not so clever from the US point of view. In its eagerness to avoid recession, they have encouraged the US citizens to write checks they emphatically cannot cover -- if someone decides to "call" the debt. So the Chinese may have a load of worthless paper on their hands. A real cynical bastard might suspect the Fed of wishing to reflate to pay the Chinese back with cheaper dollars. Dunno.
And we have a political system incapable of making tough decisions in tough times. Going into Iraq was not tough. Deciding to get out when the threat was proven to be false would have been. But once in, we couldn't let Baathists regain control, could we? A bigger bunch of murdering creeps has not been seen since Pol Pot, Mao or Stalin (notice a connection there?), or we could let Iran just march on in.... Of course, that is our problem now ... not any stupid "insurgency," we are threatened with a Shiite government hostile to us and everyone else controlling the whole shooting match in the Gulf. Saudi Arabia? Puhleez!! When faced with a Shiite bomb and Iranian troops unbuffered by Iraq (the US and allies), they'd cave like a house of cards in a 9.6 Richter event.
So for us, the little man investor ... how do we get our capital to grow, take care of retirement, school fees, orthodontist bills, mortgages ... what to do?
What to do?
Hedge. You gotta own some China. You have to have Euro exposure. You need some property mortgaged with 20-30 horizon at cheap rates. You need some gold. You need some munis and some treasuries (just in case stocks shit the bed and rates go to zero). Assuming that you are like me and look longingly at obtuse and exotic marekts, hedge funds are also a good idea -- allowing you access to markets you could not otherwise hope to tap. Of course, there is the little problem of investor qualification, but.... Another good idea is to avoid the large mutual funds. Show me where they have even met benchmarks -- most do not. Far simpler to set up an account with a broker and simply buy the benchmarks. You might be able to get Canadian brokers to sell short for you if that is what tickles your fancy.
And sell the SUV now.
So where now? we have the perception that the dollar sucks and we should buy Euros or yen or yuan or whatever. But is Europe better off? The ECB HAS to raise rates this year and be more aggressive than the Fed ... so you go long Euros, right? But raising rates there will also choke off growth, which has been shaky all along. Higher rates could stab the property markets there in the whazoo, and encourage chronic unemployment.
Currencywise, the net is that Euros will likely be the hold for the next 18 months, thereafter as Europe begins to sputter, switch back to dollars.
But, oil, oil, oil..... There is really no need for the prices to be where they are. There is plenty of it to go around, but there seems to be a well-orchestrated scheme to boost prices that works. Saudi and the Gulf States are simply awash in capital. More money than ever. More than they know what to do with. You have a project, however crazy, you can get it funded. The US and European energy companies are all showing staggering profits (they claim it is just their margin as the prices go up getting relatively larger -- and that is true, but ignores what is a "fair" profit). So how will this impact the EU and US?
The US is going to have to start to wean itself from oil dependence ... starting with driving habits, heating habits and entertainment habits. No more driving 50 miles to see a certain movie, or play golf. Or 200 miles each way to ski. It starts to mean real money. Companies dependent on large V8 powered cars will have to move quickly to avoid catastrophe (good-bye GM). Gas will hit $4.00 (still cheap by world standards, but our mileage is less than half of world standards, too). We will see higher ticket prices at the airport. Politically motivated attempts to kill off wind farms (like those of the hyper-liberal Ted Kennedy to nuke the Vinyard Sound Farm) will be exposed as being AGAINST the public interest. Sooner or later, we will drill for oil in protected areas, and hitherto unfeasible projects like oil shale and oil sands will gain momentum (the US has the world's largest reserves of these things), bio fuel will feature front and center -- and the US can grow more agricultural goods than ANY other country on earth -- and green will change its color to something more practical ... that is, what had previously been seen as an environmental loony's ideas will be seen as prudent for the US.
All this is obvious ... but in terms of dollars and cents, what to do with money now? I have got to think that there is overshoot to commodity prices, but with China sucking up everything and anything they can get their hands on ... I can't be too sure. Gold should be somewhere in the 550 range, given broad historical ratios ... but seeing that in the gold/oil case, never has so few barrels of oil bought so much gold (or this was true at the 550 area, now at the door of 800, we are closer to being in line). So go long gold at this level? I don't think so. But sell what you already have? Nah, can't quite do that either.
Housing? Well any rudimentary analysis will show that virtually ALL and ANY of the increase in personal wealth since 2001 has been in property. Direct and 1:1 -- no doubts there, even though there is a real rebound in the stock markets. And that is also directly linked to the increase in personal debt and debt overall to fund it. Put another way, the Fed made money cheap, so we went out and "invested" in real estate, or refinanced. Then we took our new-found wealth represented by our now fabulously expensive houses, and bought stuff made in China (or large new SUVs that lined the oil sheik's pockets). Just look at the increase in value of Wal-Mart -- built on cheap-assed goods made elsewhere in the world.
From the Federal point of view, they cut rates to give money to develop China and borrowed from the Chinese to do so (they own the treasuries issued). Pretty clever from the Chinese point of view: "here buy my cheap goods, and I'll lend you the money so you can buy more." Kills off US competition and everyone else's too. Not so clever from the US point of view. In its eagerness to avoid recession, they have encouraged the US citizens to write checks they emphatically cannot cover -- if someone decides to "call" the debt. So the Chinese may have a load of worthless paper on their hands. A real cynical bastard might suspect the Fed of wishing to reflate to pay the Chinese back with cheaper dollars. Dunno.
And we have a political system incapable of making tough decisions in tough times. Going into Iraq was not tough. Deciding to get out when the threat was proven to be false would have been. But once in, we couldn't let Baathists regain control, could we? A bigger bunch of murdering creeps has not been seen since Pol Pot, Mao or Stalin (notice a connection there?), or we could let Iran just march on in.... Of course, that is our problem now ... not any stupid "insurgency," we are threatened with a Shiite government hostile to us and everyone else controlling the whole shooting match in the Gulf. Saudi Arabia? Puhleez!! When faced with a Shiite bomb and Iranian troops unbuffered by Iraq (the US and allies), they'd cave like a house of cards in a 9.6 Richter event.
So for us, the little man investor ... how do we get our capital to grow, take care of retirement, school fees, orthodontist bills, mortgages ... what to do?
What to do?
Hedge. You gotta own some China. You have to have Euro exposure. You need some property mortgaged with 20-30 horizon at cheap rates. You need some gold. You need some munis and some treasuries (just in case stocks shit the bed and rates go to zero). Assuming that you are like me and look longingly at obtuse and exotic marekts, hedge funds are also a good idea -- allowing you access to markets you could not otherwise hope to tap. Of course, there is the little problem of investor qualification, but.... Another good idea is to avoid the large mutual funds. Show me where they have even met benchmarks -- most do not. Far simpler to set up an account with a broker and simply buy the benchmarks. You might be able to get Canadian brokers to sell short for you if that is what tickles your fancy.
And sell the SUV now.
posted by Zaphod at Thursday, May 11, 2006
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