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Thanks to Bespoke Investment Group for this chart.It's interesting to note that Bespoke says:
"Most people seem to believe Gold will continue higher and the Dollar will go lower, but contrarians have a pretty compelling case based on these charts as well."
I disagree on a couple of points. First, where was inflation in the mid 1970's into the early 1980's? It was very high. Now gold is back near these old highs with inflationary pressures but certainly not the same levels of inflation. Not even close. Second, the price of gold when adjusted for inflation is much lower, and yes I understand that the value of the Dollar adjusted for inflation is much lower as well. The fact is it is harder to produce gold than to print excess Dollars, Euros, Yen, etc. This argues for gold to continue to rise as long as the Fed persists in injecting money into the system.
With the recent Fed rate cut, it has been made clear that the the Dollar is less important than rescuing corporations, investors, and supposedly the economy.
Source: http://bespokeinvest.typepad.com/bespoke/2007/09/historical-ch-1.html
Look for gold/oil/other commodities to move higher and for the Dollar (USD) to move lower. Of course, oil could fall quickly with an economic slowdown. Also note that this is the Fed saying that there are serious issues in the US economy. As the euphoria fades the market may also fade. However the big commercial investors are betting that the market continues higher. More on that later.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
Yikes!Ben Bernanke jumps in with a big .50% cut. Remember that the housing/mortgage/insolvency/credit issues will probably not go away with this cut:http://www.federalreserve.gov/newsevents/press/monetary/20070918a.htmRelease Date: September 18, 2007
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.
http://bigpicture.typepad.com/comments/2007/09/how-low-will-ho.html"Housing wasn't a "true" bubble; Rather, credit was a massive bubble"I disagree that housing was not a "true" bubble. Just look at the chart:http://zeninvestor.blogspot.com/2007/09/look-at-bubble.htmlI completely agree that there is a massive credit bubble though.zenDisclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
http://globaleconomicanalysis.blogspot.com/2007/09/buyout-bingo-in-reverse.htmlMy take is that the market had been moving on various buyout deals and now these deals seem to be in trouble. Fewer deals may be bad news for the market.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
It seems that the market wants to see a .50% cut in the Fed Funds Rate. Hmmmm...what if they only get .25% or nothing?
High gold/oil/commodity prices are putting pressure on one side just as the insolvency/credit bubble/mortgage/housing meltdown puts pressure on the other.
It's also important to note that any cut will take time to work through the financial system. Insiders will also be looking to see what the "statement bias" is. This gives signals on future moves by the Fed.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIK37pL9LscY&refer=worldwide
The idea here is that a cut in the Fed Funds Rate will be inflationary. This has an effect on commodity prices such as gold and oil. The Dollar (USD) may loose value in terms of gold and oil.
Various foreign currencies may gain against the Dollar only to be devalued later to stay competitive, while gold and oil could rise in value in terms of many currencies.
Also note that as I have said before, the Fed may not cut at this meeting (18 Sept. 07). I feel strongly that they will start to cut as the housing/credit bubble deflates. Their worst fear is deflation and they will inject (print) money to counter deflation. If this happens, gold should go higher. How high? This depends on how bad things get.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
http://bigpicture.typepad.com/comments/2007/09/greenspan-media.htmlPaul Krugman at the New York Times ($ Times Select) skewers Greenspan for endorsing the Bush tax cuts:
http://select.nytimes.com/2007/09/17/opinion/17krugman.html?hp
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
Ok, you have to look at this chart. This could be the most important chart for quite a while:
I'm always surprised at how many people have not seen this chart. (Click it to look at the full size chart.) This is an inflation adjusted view of US home prices going back to 1890. This is from the Case/Shiller work. If that's not a huge bubble then what is? Which way do you think this chart will go?
Here's a paper that Shiller delivered at the Jackson Hole Fed conference in Sept. 2007:
http://www.kc.frb.org/publicat/sympos/2007/PDF/2007.09.14.Shiller.pdf
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
http://www.itulip.com/forums/showthread.php?p=16092#post16092
This is a quick, and quite negative look, at housing and the markets.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
http://www.hussman.net/wmc/wmc070917.htm
This is pretty much all you could ever want to know about the Fed Funds Rate.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
This is a great look at how the housing crisis should spread and what how the conventional wisdom is probably wrong:
http://globaleconomicanalysis.blogspot.com/2007/09/economic-ripple-effect-vs-housing.html
I usually look at Mish's blog every day.
zen
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
Check out zen habits:
http://zenhabits.net/
This is a great blog about making do with less, saving time, enjoying life etc.
A key point that I want to stress is that the Main Stream Media (MSM) is almost completely clueless and incompetent when it comes to warning the public of investing trends. I certainly read the MSM investing sites/blogs etc. but I get most of my "news" from Alternative Media blogs.
I would like this blog to be the place for intelligent people, who don't have time to follow all of these alternative blogs, to learn what is going on. Many of the Alternative Media blogs are written for people who are at a more advanced level or are in the financial industry. I will do my best to summarize what is being said as well as bring to light the most important information available.
I do want my readers to know what I'm reading as there are a lot of blogs that are not worth reading. Here's a short list of influential blogs and sites:
General:
The Big Picture
http://bigpicture.typepad.com/
Calculated Risk
http://calculatedrisk.blogspot.com/
This is a must read on the housing/mortgage crisis.
iTulip
www.itulip.com
Eric Janszen runs this site and he made a great call in 2000 that the Nasdaq would fall. He also made a great call on gold in ~2002. His site is a must read on the housing/mortgage crisis as well as the investment front.
John Hussman
http://www.hussman.net/
John's weekly letters are a must read. One of his funds is way ahead of the S&P 500 since 2000.
Nouriel Roubini
http://www.rgemonitor.com/blog/roubini/
Roubini currently has a very negative view on the economy and the markets. Many of his predictions are starting to happen. Hopefully he is not completely right.
Jeff Saut
http://www.raymondjames.com/inv_strat.htm
Many insiders read and quote Jeff Saut
Minyanville
http://www.minyanville.com/
The Kirk Report
http://www.thekirkreport.com/
This blog is mainly about trading but Charles Kirk also posts great links to articles on investing.
Trading:
Alpha Trends
http://www.alphatrends.blogspot.com/
Alpha Trends is great for what is happening day to day in the various indexes (S&P 500 etc.) and also gives ideas on which way a selection of individual stocks might go. He is very accurate.
Slope of Hope with Tim Knight
http://www.slopeofhope.com/
Tim likes to bet against stocks (shorting or going short) and his blog is great to learn about this process. Don't limit your reading to when the market is down as that's not the time to go short.
The Kirk Report
http://www.thekirkreport.com/
The Market Speculator (a technical trader)
http://www.themarketspeculator.blogspot.com/
bzbtrader (a technical trader)
http://bzbtrader.blogspot.com/
I list these trading sites mostly as reference material. If you don't have time to really learn how to trade don't bother. One way to look at these blogs is that these people are your competition in the market and they are very good.
There are many more sites and blogs in my list but these are some of the very best to watch. I'll mention others as I go along.
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
Because of the current credit crisis, Wall Street has been pushing for the Fed to ease rates. Will the Fed comply with this? It seems as though they will but this is not a forgone conclusion. Many blogs pundits are talking about various scenarios. Here are the most common:
1. A .25% cut. This is also known as a 25 basis point cut or a 25 "bip" cut. Bips and basis points being the same thing: each bip is 1/100th of a percent.
2. A .50% cut. AKA 50 bips.
3. No rate change
4. A rise in rates. Most are not talking about this and I feel that this is unlikely but certainly possible.
Why is this Fed meeting so significant? In one sense it's not significant in that the market, via bond prices, has already priced in a Fed cut of at least .25%. In another sense the Fed may just be largely irrelevant. For background on this you should read John Hussman:
http://www.hussman.net/wmc/wmc070910.htm
In another sense, market reaction to a Fed decision could be significant. The stock market could fall or it could rise. But it could always do either of these right? Well, currently, the market is on the high end of the valuation spectrum and is quite susceptible to a fall (read Hussman). On the upside, the market may continue to rally. I would suspect that any rally up will be somewhat limited in time, though, as the housing market continues to deteriorate, which will put more pressure on the banks and various finance related companies. A rally up could, however, be quite strong. I would suggest restraint in participating in such a rally unless you are a pro.
Anyway, the market thinks a rate cut is coming and if the Fed decides not to cut then the stock market might have a serious sell off. To read various ideas and mostly well informed speculation on this, you should check out the comments on this blog posting:
http://bigpicture.typepad.com/comments/2007/09/open-thread-wha.html#comments
The Big Picture is a fantastic blog and I will cite it often:
http://bigpicture.typepad.com/
A note on the current credit/liquidity crisis:
This is probably a crisis of insolvency where various institutional investors bought products that were based on subprime mortgages. Many of these investments are now, at the very least, diminished in value or worthless. To make matters worse, many of these investors borrowed money to make these investments. Here is an in-depth look at this:
http://www.rgemonitor.com/blog/roubini/212919
Roubini has been a bit early in his calls for economic problems, but he has been quite accurate.
Disclaimer: This blog is not a substitute for an investment adviser and is not to be taken as investment advice. You are fully responsible for your investment decisions. Please find a qualified investment adviser.
