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Joined: 11/3/2007
Posts: 15
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I have heard many argue that the dollar is not in trouble simply because other countries were late to the rate cutting party and still have lower to go with their central bank rates. I don't disagree, but my inflation thesis is a long term perspective, so I ask is the fact that we are currently positioned to possible do better in the short run (as compared to the Euro) is that good enough or will it last? We are the country that is using DEBT to finance the party, more than any of our counterparts. Have you seen the Peter Schiff was right video? Schiff was calling for the housing bubble to burst before it did, just as he has been predicting a falling dollar for quite some time. The dollar will fall over the long run and commodities are the play. I am doubling my natural gas position here because I think we are going to see a run. People out of work might not be driving as much, but they are still going to heat their homes and the prices of natural gas have been overdone---even given some of the decreased demand as of late.
I have said several times that I think we have a bubble in treasuries--hence my position in TBT, and I think the other bubble that we have going right now is a CASH BUBBLE. Is there such a thing? You bet there is. Many people have put money in the bank to avoid the risk of equities. As we see signs of stabilization, we are going to see the cash bubble burst and money will pour into equities and commodities. I think the cash bubble has given the DEFLATIONERS a sense of security---which I might add has been valid in the short run---BUT IT IS GETTING OVERDONE. No doubt we have seen demand destruction, but as these government programs begin to work, we will see a resurgence of demand.
I heard a prediction of $600 gold for 2009 made today. Back in late 2007 many of the pundits were calling the bottom in the financials and make predictions to buy the investment banks based on their "valuation". See talking head Ben Stein talk about how cheap Merrill Lynch was at $76. I will embed the youtube video at the end of this post. I have tried many times to have Mr. Stein on our show, but he will not respond. Of course if I were him I probably wouldn't respond either. The fact is many people are refusing to face the realities of what have happened this year and what is going to happen. We keep attaching to theories such as "we are still the world's reserve currency" and others. Things are changing and like it or not, the dollar is going to fall and commodities are going to rise.
I have asked before "What happens if China rebounds first?" I believe that they will and I think it will have a devastating effect on our economy? They will rebound first for a couple of reasons. First, they have less banking problems than we do. They are also using a very smart plan to improve their infrastructure and best of all--THEY ARE PAYING FOR IT WITH A SURPLUS. Don't forget that growth is just slowing in China--domestically we are declining. So as they rebound and cause price pressures, we are going to still be slowing and faced with rising prices. The Chinese are going to continue to consume oil and natural gas---more and more every year. This demand will get inflation going again soon--whether we are ready or not.
Do I think gold can fall in the short run? Yes, I think we are so scared of deflation that anything is possible in the short run. These markets are definitely not rational and I am trying to position size to make sure that I can stay solvent until they return to a rational state. Over the long haul--and I don't know exactly when--Schiff will be right about the price of gold and the dollar.
I am not a gloom and doomer, but I think we are talking reality here. Again, I had many comments to yesterday's post saying that being early is equivalent to being wrong. Not when investing. Schiff was early---BUT WAS HE WRONG??? WATCH THE VIDEO AND DECIDE.
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