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Post by lc on Jun 21, 2006 20:48:51 GMT -6
Popular demand has created this thread.
WTF do you do when hard assets fall, the dollar is rising and stagflation appears a near given for the next few years. Where do you invest to hedge, to prepare for your retirement, to tuck away something for the kids college?
I see so few good opps right now that I hate to even start with a suggestion. But if short term rates rise, then short term t-bills or t-bill funds sounds like it may be one of the best ports in a storm.
Any and all input is welcome, or deeply encouraged.
What are your strategies for dealing with the uncertainties of the present and future marketplace?
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Post by unlawflcombatnt on Jun 21, 2006 23:34:42 GMT -6
LC,
Thanks for starting this thread. I hadn't really thought about short-term bonds. That doesn't sound like too bad an idea at present.
I still think gold is the best way to go. Though it has fluctuated wildly in the last couple of months, it is still well over 100% higher than it was at the beginning of the Bush dictatorship. Gold was in the low 400's in early 2005, and today finished at $592/oz. That's still a huge increase. Silver, platinum, and palladium are also up similar amounts.
Considering the way the markets have moved over the last several months, I think it's worthwhile to compare the Dow-Jones with Gold prices. Today the increases were Gold 2.9%, DJI 0.9%. The dollar also declined 0.4% against the Euro.
Over the last 6 months, despite the recent plunge in price, gold is still up 19%. In contrast, the Dow-Jones is up only 1.8%. Also, the dollar has declined 8% in relation to the Euro over the last 6 months.
I agree, however, that it's a tough call as to where to put your money. Nothing really looks very good, or very predictable.
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Post by lc on Jun 22, 2006 21:47:38 GMT -6
UC, What if gold, silver, plat, palad, and land have all hyper evaluated?
There is long term and short.
Haliburton stocks and oil stocks still sound good if you can bear the Karma.
But short term gold may fall 15% or rise another $300. At best Gold is a long term weak hedge and a short term bonanza.
Since we are talking real money, where does the smart money go?
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Post by unlawflcombatnt on Jun 23, 2006 17:14:56 GMT -6
LC,
I think the "smart" money might go somewhere other than where mine would go. My preference is gold, simply because it seems like the least likely investment to de-valuate significantly. In other words, I think gold is great place to put money to save money, but not necessarily to make a lot of money.
Some smart investors may be able to find good investments, and to re-invest in something different if something else looks better. I don't know enough to do that. Nor am I daring enough to try it.
I think all precious metals could be overvalued. The reason I like to look at all 4 at once, is that many claim that gold prices are being manipulated by governments, and even some investors. If gold moves in the same direction as the other 3, then it seems less likely that the price and market for gold is being specifically manipulated. This may very well have happened in the past. But at present, I don't see any indication of that, since gold prices seem to be moving in the same direction as silver, platinum, and palladium.
Gold could very well drop some. I wouldn't be at all surprised. However, I doubt it would drop 15% and stay at that level. I think the long-term trend will be up. I think it will continue to be volatile, with frequent ups and downs. I don't think it will rise $300/oz in the near future, and stay at that level. The recent rise and fall was a perfect example of gold's volatility. (Interestingly enough, silver, platinum, and palladium also took the same roller coaster ride.) I think gold may rise $300/oz over the long run and stay at that level or above. That'll depend greatly on how much true inflation we have in the future. (As opposed to the artificially concocted inflation espoused by the government.) It'll also depend on whether good investment opportunities continue to be scarce. And that will depend on how our economy does. In this latter respect, I can't see anything getting better until Bush is out of office.
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Post by lc on Jun 23, 2006 20:11:10 GMT -6
The recent rise and fall was a perfect example of gold's volatility. (Interestingly enough, silver, platinum, and palladium also took the same roller coaster ride.)
This is the single most interesting recent development in the economic picture. It speaks of an event involving the dollar that frankly doesn't make any sense and is spooking a lot of other markets. The recent and alogical rise in the dollar has caused other markets to fall fast and far.
And there is no obvious cause for this. Without being able to reconcile what is driving the dollar I am simply stumped to figure out what might happen as a result.
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Post by tatuma on Jun 26, 2006 6:56:36 GMT -6
I read Samuelson, because it is a hardcopy in the bathroom, and I am a captive audience! www.msnbc.msn.com/id/13322637/site/newsweek/Promise and Peril World financial markets are more interconnected than ever. But do massive global money movements create new risks? • World Market RisksWorld financial markets are more interconnected than ever. But do massive global money movements create new risks? By Robert J. Samuelson Updated: 2:36 p.m. ET June 14, 2006 June 14, 2006 - It is too early to say whether the recent declines in global stock markets signal anything out of the ordinary. Though large, they are hardly unprecedented: 8 percent for the Dow, 19 percent for Japan's Nikkei, 21.7 percent for Brazil's Bovespa (all changes are measured from recent highs, in April or May, until yesterday's closes). But the fact that they've occurred simultaneously suggests herd behavior. Spoiled by years of cheap credit, global investors seem to be reacting to the prospect of higher interest rates by fleeing stock markets almost everywhere. There is danger of a broader financial and economic setback. the rest at link! This is his take on the world of econ as of June 14, warning of the untested under the new and "interesting" conditions in the world economy. He draws some analogies to the Asian currency crisis, of a couple of year ago. I studied this extensively after the 2004 election debacle, by reading everything I could on it. The most informative was Krugmans book on the subject that showed how highly mobile capital moving rapidly after the baht went batty, produced a domino effect through out asia. World bank and the IMT made this all worse by maintaining that if hard hit countries, didnt allow free and rapid efflux of capital, no rational entity would ever invest in that country again. Countries that ignored this advice, and clamped down on capital efflux, like Malasia, in particular, recovered much faster and more completly than those countriies that allowed the speculators free reins! In the present issue that I read during a recent efflux of my own, Samuelson make the case that the Fed needs to continue to raise interest rates, as their job is to: "Take away the punchbowl of easy money just as the party gets going strong". He maintains that a recession is much better than the double digit inflation that we had in the 70s that lead to all sorts of irrational "investments". If inflation is going to continue, which I think all rational individuals agree on, then a recession is the lesser of the toxic treatments. Increased interest rates may slow inflation some but will also slow the growth of the econ. Do you think the Bush admin is going to let that happen during the 2006 elections?? Well the FED is indpendant of political pressure, is it not?? So naturally the FED will do what is best for American, the hell with political considerations.! (insert rolfman sarcasm gremlin here) TAT
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Post by lc on Jun 26, 2006 9:32:54 GMT -6
from Tat's article Sam said: Sure, says Roach, stock, commodity and housing prices may weaken. Some investors will lose. But the damage to the "real economy" of production and jobs will be modest.
This appears to be unavoidable as what is really being discussed is a transition into complete globalization that is not fully realized. Wage, trade and currency imbalances will require a long series of corrections before they stabilize at sustainable levels.
So what if anything is left? Buying into hedge funds and derivatives is just plain stupid when you know that many of the underlying markets are gonna weaken. The dollar may be the best currency but it IS gonna take a chipping from inflation EVEN IF we induce recession to allow corrections.
And there is still that problem of far too much liquidity seeking any opportunity for a return that won't resolve quickly, or perhaps not even at all if we induce recession.
Personally US bonds, short term seem like the most practical choice.
But skipping off topic, I am wondering whether we have passed a tipping point in the world wherein too much wealth has shifted into the investment income sector and out of the production sector and the consumer sector to be sustainable at all.
Has the investment sector grown so large that the worlds GDP simply can no longer serve it's needs?
Is the "real economy" that Samuelson mentions large enough to serve as the investment income reservoir that the financial institutions consume? I don't think it is, and therein lies the real problem. I believe there is a basic systemic flaw that can only be corrected by a redistribution of wealth downward and away from centralization.
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Post by unlawflcombatnt on Jun 26, 2006 13:00:12 GMT -6
Tatuma, Thanks for the article by Robert Samuelson. Also, I remember reading the same commentary you read from Krugman about "capital flight" and capital controls a couple of years ago. I think Krugman recommended to some of the fledgling countries that they put capital controls in place. And I think it helped them as well. The following statement from Samuelson is worth commenting on. " In theory, liberalization benefits everyone. Capital flows to the most productive investments.... Countries with good investment opportunities expand more rapidly. Huge capital inflows have clearly helped China by financing new factories with modern technology. " What, exactly, causes capital to flow to the "most productive" investments? Reduced production costs. What reduces production costs? Cheap labor. If there are no tariffs or restrictions to imports into the United States, then the best way for American Corporate Multinationals to increase their exorbitant profits is to send their production facilities to the countries with the lowest labor costs. Hence, higher-paying American jobs are "exported" and become lower-paying foreign jobs. Even if the foreign workers are only 1/10th as productive as American workers, they become a bargain if they are only paid 1/50th as much. And that's exactly what's happening. All of our free trade/free slave agreements are facilitating this. Investment opportunities become better if the labor costs of production can be reduced. Unfortunately, this is simply a supply-side focus, and fails to account for the shrinkage of the consumer market caused by the reduction in consumer/worker income that results. Excessive credit and consumer borrowing have allowed this imbalance to worsen to a critical point. American consumers have been able to increase their spending through increased borrowing, while their real income has been declining. Foreign consumer markets are not increasing fast enough to compensate for loss of American consumer/worker income. What has been increasing, however, is American consumers' ability to borrow money and extend their degree of indebtedness. Needless to say, this is not a sustainable situation. Consumer spending increases cannot be maintained indefinitely by ever increasing amounts of borrowed money. The credit/borrowing bubble certainly does need to be burst sooner, rather than later. In my opinion, we need to control "capital flight" from the United States. If we don't, the good "investment opportunities" available in foreign countries may well lose their market. The supply-sider thinking always focuses excessive attention to production, and insufficient attention to consumption. One element of the profit-making equation is almost always overlooked. And that's the market needed to sell products. Profits are made only from sale of goods, not by production. Reducing production costs at the expense of reducing consumer purchasing power is a recipe for disaster. Below is a copy of both hourly and weekly real wages from the United States Bureau of Labor Statistics, showing the steady decline in real consumer/worker wages. The steady decline in real wages is not consistent with a healthy, sustainable consumer market. Again, increasing borrowing power cannot indefinitely substitute for wage-financed spending power. Hopefully someone in Corporate America's elite will realize this before it's too late. But I'm certainly not holding my breath.
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Post by lc on Jun 27, 2006 11:32:04 GMT -6
What, exactly, causes capital to flow to the "most productive" investments? Reduced production costs. What reduces production costs? Cheap labor.
This may be an errant conclusion, but it leads into a point I expected you to have made Unlawful.
What does "productive investment" mean here? Productive for whom? For the investor seeking a return or for "production" in the "real economy".
Savers earn higher returns. Countries with good investment opportunities expand more rapidly. Huge capital inflows have clearly helped China by financing new factories with modern technology. In many ways, the world economy seems healthy. In 2006, the IMF predicts the fourth consecutive year of growth exceeding 4 percent.
Only as a byproduct of better investment returns does Sam offer the example of China's manufacturing expansion.
The reality is that once capitalism was defined by the ammasing of capital for the purpose of engaging in productivity enhancing ventures that would return a profit. In today's "capitalistic" environment perhaps 10% of capital investments serve that purpose.
Investors rely on dozens of non productive investments while only new stock sharing and corporate profits are used as stimuli to the actual growth of productivity.
This is a giant shift. After all, how can non productive investments that don't stimulate the economy be expected to succeed over any term? Only by defying the basic assumptions of capitalist theory I suppose.
Taking oil as an example, how can the greater economy indefinitely support the profits realized by oil speculators and options traders? The price of oil is reportedly 30% comprised of speculator dividends. But the productive capacity of the world is either neutrally influenced, or negatively influenced by the burden of that price increase.
I don't believe this is a sustainable predicament, nor a unique example. I believe it is epidemic in the international financial institutions.
Capitalism really isn't anymore.
I suspect that Samuelson meant the former.
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Post by unlawflcombatnt on Jun 27, 2006 14:05:45 GMT -6
LC,
I may not be perfectly following what you've said. I use the simplest definition for productive investment. It would be an investment that makes a profit for the investor. Since it is those investors who put money into (hopefully) productive endeavors, I define "productive" investment from the standpoint of the investor.
What's most "productive" for society could certainly be different. However, were it not for a few important nuances (such as the unsustainable ability to finance spending with borrowed money), these 2 variations of "productive" investments would be similar. Also, if "productive" investments for investors were defined in terms of long-term profits, as opposed to short-term profits, the 2 variations of productive investment would be much more similar than they currently are. The focus on short-term over long-term has been enabled by debt-financed consumer spending. This short-term focus, however, works directly against long-term benefits. With short-term profits being fueled by labor cost reductions, and debt-financed spending compensating for wage-financed spending loss, the long-term picture is often overlooked. And the long-term effects of this "live-for-today" investment strategy is going to hurt not just workers and consumers, but business and investors as well.
My previous response was based on the belief that the only way to increase profits with a given amount of demand/consumer spending/product sales dollars is to reduce the cost of production. In other words, if spendable consumer spending is $X trillion, and profits are $X trillion - production costs, then the only way to increase profits at $X trillion of sales is to reduce production costs. That could be accomplished by cutting labor costs.
The long-term problem with this method is that the reduction in labor costs reduces wage-financed consumer spending dollar-for-dollar. However, this problem is circumvented by increasing consumer spending financed by borrowing, thus circumventing the problem created by declining consumer/worker income.
The wages lost from job outsourcing to foreign countries reduce consumer purchasing power. Were it not for the insane ability of consumers to borrow and spend more than they make, this problem would have already come to a head. And it would have either caused an end to outsourcing, or a collapse of our economy.
As many economists are saying, especially Paul Craig Roberts, this economy is fueled by credit and borrowed money. There will be a day of reckoning when this debt-financed economy will crash.
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Post by unlawflcombatnt on Jun 27, 2006 14:15:40 GMT -6
I thought it would be worthwhile to put the recent fluctuations in Gold and Dow Jones prices in perspective. Both have declined significantly over the last several months. It would be easy to look at these fluctuations and believe that neither are safe investments. However, a 6-month view shows a much different picture. Despite it's large decline over the last 2 months, gold has still increased 15.2% in the last 6 months. In contrast, the Dow Jones has increased only 1.8%. The point here is that despite wild fluctuations, the trend in gold prices is strongly upward. In contrast, the Dow has increased relatively little during that time. Below is a 6 month comparison of the 2 from 6/27/06. Also worth noting is the 6.7% decline in the Dollar vs. the Euro over the last 6 months.
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Post by tatuma on Jul 5, 2006 6:53:42 GMT -6
Hey, i finally have the scoop on investing in the present chaotic market, and I have it on excellent authority, who would know better? !!!!! www.informationclearinghouse.info/article13851.htmIs Cheney betting on Economic Collapse? By Mike Whitney 07/04/06 "Information Clearing House" -- -- Wouldn’t you like to know where Dick Cheney puts his money? Then you’d know whether his “deficits don’t matter” claim is just baloney or not. Well, as it turns out, Kiplinger Magazine ran an article based on Cheney’s financial disclosure statement and, sure enough, found out that the VP is lying to the American people for the umpteenth time. Deficits do matter and Cheney has invested his money accordingly. The article is called “Cheney’s betting on bad news” and provides an account of where Cheney has socked away more than $25 million. While the figures may be estimates, the investments are not. According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in “a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation.” Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar. So, while working class Americans are loosing ground to inflation and rising energy costs, Darth Cheney will be enhancing his wealth in “Old Europe”. As Blackburn sagely notes, “Not all ‘bad news’ is bad for everybody.” This should put to rest once and for all the foolish notion that the “Bush Economic Plan” is anything more than a scam aimed at looting the public till. The whole deal is intended to shift the nation's wealth from one class to another. It’s also clear that Bush-Cheney couldn’t have carried this off without the tacit approval of the thieves at the Federal Reserve who engineered the low-interest rate boondoggle to put the American people to sleep while they picked their pockets. Reasonable people can dispute that Bush is “intentionally” skewering the dollar with his lavish tax cuts, but how does that explain Cheney’s portfolio? It doesn’t. And, one thing we can say with metaphysical certainty is that the miserly Cheney would never plunk his money into an investment that wasn’t a sure thing. If Cheney is counting on the dollar tanking and interest rates going up, then, by Gawd, that’s what’ll happen. The Bush-Cheney team has racked up another $3 trillion in debt in just 6 years. The US national debt now stands at $8.4 trillion dollars while the trade deficit has ballooned to $800 billion nearly 7% of GDP. This is lunacy. No country, however powerful, can maintain these staggering numbers. The country is in hock up to its neck and has to borrow $2.5 billion per day just to stay above water. Presently, the Fed is expanding the money supply and buying back its own treasuries to hide the hemorrhaging from the public. Its utter madness. Last month the trade deficit climbed to $70 billion. More importantly, foreign central banks only purchased a meager $47 billion in treasuries to shore up our ravenous appetite for cheap junk from China. Do the math! They're not investing in America anymore. They are decreasing their stockpiles of dollars. We’re sinking fast and Cheney and his pals are manning the lifeboats while the public is diverted with gay marriage amendments and “American Celebrity”. The American manufacturing sector has been hollowed out by cutthroat corporations who’ve abandoned their country to make a fast-buck in China or Mexico. The $3 trillion housing (equity) bubble is quickly loosing air while the anemic dollar continues to sag. All the signs indicate that the economy is slowing at the same time that energy prices continue to rise. This is the onset of stagflation; the dreaded combo of a slowing economy and inflation. Did Americans really think they'd be spared the same type of economic colonization that has been applied throughout the developing world under the rubric of "neoliberalism"? Well, think again. The American economy is barrel-rolling towards earth and there are only enough parachutes for Cheney and the gang. The country has lost 3 million jobs from outsourcing since Bush took office; more than 200,000 of those are the high-paying, high-tech jobs that are the life's-blood of every economy. Consider this from the Council on Foreign Relations (CFR) June edition of Foreign Affairs, the Bible of globalists and plutocrats: “Between 2000 and 2003 alone, foreign firms built 60,000manufacturing plants in China. European chemical companies, Japanese carmakers, and US industrial conglomerates are all building factories in China to supply export markets around the world. Similarly, banks, insurance companies, professional-service firms, and IT companies are building R&D and service centers in India to support employees, customers, and production worldwide.” (“The Globally integrated Enterprise” Samuel Palmisano, Foreign Affairs page 130) “60,000manufacturing plants” in 3 years?!? “Banks, insurance companies, professional-service firms, and IT companies”? No job is safe. American elites and corporate tycoons are loading the boats and heading for foreign shores. The only thing they’re leaving behind is the insurmountable debt that will be shackled to our children into perpetuity and the carefully arranged levers of a modern police-surveillance state. Welcome to Bush’s 21st Century gulag; third world luxury in a Guantanamo-type setting. Take another look at Cheney’s investment strategy; it tells the whole ugly story. Interest rates are going up, the middle class is going down, and the poor dollar is headed for the dumpster. The country is not simply teetering on the brink of financial collapse; it is being thrust headfirst by the blackguards in office and their satrapies at Federal Reserve.
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Post by graybeard on Jul 5, 2006 9:12:24 GMT -6
Powerful, Tatuma!
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Post by unlawflcombatnt on Jul 5, 2006 14:05:20 GMT -6
Tatuma,
Thanks for the post. Interesting (and scary) stuff.
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Post by lc on Jul 5, 2006 20:42:49 GMT -6
Hey Tat, the author is a little enthusiastic IMO. The investments described don't exactly indicate that the bug Dick is betting on collapse as much as inflation and a falling dollar. On the other hand why isn't the bastard buying bonds? ? I wish the article had any actual substantiation for his claims......
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