Thursday, May 20, 2010
In last quarter's posing (am I so lazy, I'm down to posting every 13 weeks?), The IER layed out a road map on how the financial beating we will take will present itself.
The short version:
Dollar rises and causes,
-commodities to get crushed.
-then equities (that's stocks for you RE agents) get positively smashed
-then debt (bonds) get horrifically sold, which takes interest rates up
-finally, everything that isn't nailed down gets sold to raise dollars to extinguish debt.
I have also insulted the state religion by saying that Bainbridgeislanddreamhomes will also be taken out and shot. 20 cents on the dollar...you have heard it before.
Let's look at the charts
That's the S&P500, and it is obviously uglier than a Bremerton meth-head in a prom dress. I suspect that a bounce is coming as nothing goes in a straight line. People with the power to borrow at the point of a gun are looking at this chart as well.
That's oil. If we were in "recovery," we would see oil demand driving, but instead, we are just seeing bankers that are long oil trying to offload their inventory (being held in leased supertankers) into a world that is in decline. I expect oil to retest its lows and give Prius drivers something else to get pissy about.
That is gold. Gold is getting sold right into the teeth of Euro stress and the currency vaporizing before our eyes. Why? When you are scared, you don't want bling - you want dollars.
Food is also getting cheaper. Commodity speculators are getting a lesson in currency trading. That is wheat. The commod market is getting smashed in hard and soft commods. Spreads are blowing out between fair-trade, shade-grown, hip-n-trendy organic food and normal food everyone else eats.
That's the US dollar, which all the AM radio folks are saying is going to be worthless (just as they said the housing market would never retract because of the "Ownership Society). Yeah...right. This is what is causing the mess, as everything in the world is essentially a dollar denominated asset.
This should be a relief to all the high-minded Progs that live on Bainbridge and like to vacation in Europe for the sole purpose of sounding smarter than they really are. This is what happens when the welfare state breaks along ethnic lines.
Greece was a warm up. Spain is next. Germany isn't going to put up with this crap forever.
The money is currently running into the safety of US government debt, which is a temporary phenomenon.
This will reverse when we get the bounce and the dwindling money supply temporarily reverts to stocks before they hammerhead stall and head down for a retest of the March 09 lows.
The Institute For Economic Reality holds the minority belief that interest rates are inversely correlated with inflation. As money becomes more scarce (and valuable), the price goes up. The price of money is money, which is to say interest rates. It is times of high liquidity that asset prices rise, and bonds are a major asset price. More money in circulation means more money chasing bonds, which means LOWER interest rates. The inverse also holds true.
As the US Dollar rises, rates will rise with it. Remember, this is over a longer term, as day-to-day fluctuations take into consideration other things, such as fear. Rates dropping in short bursts in a rising dollar environment are no more significant than any other price going up due to finding temporary favor relative to other classes. Do not confuse asset specific pricing moves with overall monetary moves. One is wave action, the other is tidal.
Please, oh please, let Goldman Sachs do a Bear Stearns. Their client base can run faster than Goldman's HFT machines can front-run your trades, and without a deposit base, they are going to die a mercifully fast death. I fervently pray that Lloyd The Dark Lord, will come out and declare Goldman to have ample liquidity.
Come to think of it, Lloyd The Dark Lord has been throwing around the cash quite a bit lately. Perhaps he knows something...
If we get both Lloyd The Dark Lord and Jim "The Ultimate Fade" Cramer singing the praises of Goldman, that is an "all in short" signal like none other.
We should see some form of a bounce, with commods still tanking.
I also expect Bainbridgeislanddreamhomes to still get whacked. For 1Q10, 10% of homeowners that make payments failed to do so at least once. That is up from 9.5% in the previous quarter.
Recovery? My elbow...
Stay solvent. Stay nimble. Hoard cash.
-Ernst Stavro Bloviator, Senior Fellow