Friday, May 15, 2009

Money Magazine - Good Contrary Indicator?

In my two decades plus experience in the investment business, I have found one thing which is usually true. What is true is that the conventional wisdom is always wrong! Where can one find the conventional financial wisdom?

Money Magazine is a good place to look. They are still firm believers in the cult of equities. I guess they've not noticed the equity bear market that has wiped out a decade's worth of gains.

One asset that I do like for the long term is gold. I have been worried about gold because I noticed that some media outlets were actually talking about gold. But there is no need to worry! In last month's issue - Money Magazine's so-called investment survival guide - they once again kowtowed to Wall Street and trashed gold. Hooray!

There were quotes from several financial advisors/planners who totally trashed gold. Great! One thing I could never figure out about these mainstream media types - why are you asking a "stock" person about commodities? That would be like asking a person who trades copper futures for a living about what they thought about the latest earnings from Apple. It makes no sense.

I am happy to be in a position that is contrary to Money Magazine and in agreement with smart investors such as: John Paulson, David Einhorn, John Burbank, Kyle Bass, Marc Faber and Jim Rogers. I won't be worried until Money Magazine "recommends" gold.

Tuesday, May 12, 2009

The Madness Continues

The madness continues in what used to be the envy of the world - the American Capitalist System. The latest bit of madness is the news that the Federal Reserve cannot account for $9 Trillion in "off-balance sheet" transactions! Incredible! I wonder if the money was siphoned into the hands of the money grubers on Wall Street? Or maybe some politicians fattened up their Swiss bank accounts?

And where are the "guardians" of the people - the media on this subject? The silence is deafening. I know where the media is - spreading more manure for Wall Street. The Wall Street Journal reports that the "scourge" of deflation is about to sweep the globe!

I thought that Wall Street had given up on that fairy tale known as deflation. Apparently not. With the Federal Reserve preparing to print trillions of dollars out of thin air to purchase Treasuries, I think the last thing we have to fear is deflation.

But that's the way Wall Street works. They try to distract you with some great story - much as a pretty magician's assistant will distract onlookers from what the magician is really doing. Wall Street wants everyone to worry about deflation while it's really full-fledged inflation roaring down the tracks. That is the way Wall Street can make the most amount of money from the "suckers" - the investing public.

Monday, May 11, 2009

Government Bubbles and Inflation

Is the recent stock market rally the beginning of a new bull market? Probably not. Well, what is it then? It is the US government going full blast in attempting to reflate the burst credit bubble.

MIT professor Simon Johnson told the Wall Street Journal this weekend that "the government is reflating the financial bubble." Professor Johnson went on "The over-subsidizing by the government in the financial sector will get us stuck in the same kind of financial bubble that got us into the mess in the first place. Last year, what we saw was a private sector financial bubble."

Johnson says that the government debt bubble is what directly precedes inflation. "The government credit put in the banks makes inflation almost inevitable. It's a recipe for going to hyper-inflation. "

And if anyone has noticed, longer-term interest rates have been moving up briskly lately. The 30 year Treasury bond auction last week was a disaster. Portends of the future???

Friday, May 1, 2009

Deflation and Investor Psychology

In over two decades in the investment business, I never cease to be amazed by how psychology affects peoples' investing. Human beings have the nasty habit, as far as investing goes, of extrapolating the recent past into the infinte future.

Look at the current deflation expectations. Deflation expectations have become so embedded in investors' minds that they now see a deflationary pricing environment lasting for decades! This even exceeds the length of time for the deflation caused by the Great Depression.

These so-called investors believe that central banks and governments have so fine tuned their policies that inflation will not re-emerge or that if does the central banks will be able to smoothly reverse policy and quash it. Investors are expecting these "perfect" policies from the same dimwits who drove the economy into the ditch in the first place. Human psychology is amazing!

I expect to see inflation raise its head within the next year or so. Inflation will come as a result of the following items: once global deleveraging ends (soon), the US Dollar will resume its steady long-term decline; the flood of money created by the Fed will burst the dam and begin moving into the economy; and finally, there will be a sharp reduction in the supply of raw (commodities), intermediate and finished goods relative to demand due to the impact of the credit crunch on producers and retailers.