9 things keep in mind in this market and economy
By Daniel at 7 June, 2009, 11:16 pm
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1. The rise in equity prices from the recent bottom to here has been *MAGICAL* (banks don’t float shares to lose money - they have been striking while the iron’s hot)
2. Always watch: overall employment, home values, and auto sales. Even though many people insist employment is a lagging indicator, these are the true drivers of the economy to watch (unless one is a trader - a whole other story).
3. We are, and have been, in a strongly deflationary environment. Yes, commodity prices have been rising, but prices do not define inflation or deflation. The world saw $50 Trillion in “assets” disappear in 2008. All of the central banks and treasuries, combined, have NOT added $50 Trillion to compensate for it.
4. Everyone is concerned about the debt and deficit driving severe inflation, but always keep in mind that Fed has no vested interest in monetizing the deficits unless there is something in it for them. I don’t think they’re interested in a vault full of claim checks on the treasury of a bankrupt nation.
5. The huge deficit is working to SOLIDIFY the status of the USD as the world currency. A fiat currency can only exist through debt, and an inflationary environment is desirable for the illusion of growth. The greater the debt, the greater the opportunity to maintain a sustained inflationary environment (although, overall, the inflationary environment is not being sustained).
6. Since we need the deficit, and the Fed doesn’t want to monetize it, we need to ensure China has a current accounts surplus. Hence, a 363 bankruptcy to transfer what is rightfully owned by the secured creditors to the Chinese, so they can export Buicks and eco-junk back to us (triggered by the engineered spike in oil prices and executed by firing Wagoner) . I expect to see more of this (thinking Citi), and the Supreme Court ruling on IN v. Chrysler is VERY important.
7. Always remember that the genuine values of currencies rise and fall in tandem. Their changes are published as relative to one another, not relative to the value of all combined assets.
8. Possibly the most important: the California drought, in the midst of the California depression. Expect to see food prices rise sharply.
9. For anyone wanting to keep a little gold for insurance, but who doesn’t have or want a safe, make a decorative candle or two with something “special” melted into the wax.
A Happy Man
-I invest, I do not trade.
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