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« The Market is Jittery - What to Watch | Main | Market is Turning Into a Goat Rodeo »

Tuesday, May 25, 2010

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yelnick

Hock, on whether we rotate into necessities as the end nears (oil, food vs treasuries, stocks) - this confuses investing with consumption. Near the end of the debt bomb we won't be running out of oil or food, and only if we get hyperinflation will there be a panic that way. Instead money should be hoarded and people will bury it into things of lasting value. Oil and food are consumables. Oil wells and farms, maybe. I would say keep an open mind about rotating into the AUD, NZD, Loonie and Swissies.

yelnick


Hock, ok, read the Bill Gross comment. Love this paragraph:

"Several months ago I
rhetorically asked whether it was possible to get out of debt crisis by increasing
debt. Yes – was the answer, but it was a qualified yes. Given
that initial conditions were favorable – relative low debt as a % of
GDP, with the ability to produce low/negative short-term policy rates
and constructively direct fiscal deficit spending towards growth
positive investments – a country could escape a debt deflation by
creating more debt.
But those countries are few – the U.S.
among perhaps a handful that have that privilege, and investors,
including PIMCO, have strong doubts about U.S. fiscal deficits leading
to strong future growth rates."


Greece and the PIIGS will default. This is what happened in the 1930s - a rolling series of sovereign defaults. History shows nations default more often that you might imagine. I think Japan will also need to default, but in such a way to preserve the savings of their greying population. 


The idea that more debt can resolve too much debt is laughable without either (a) investing it wisely in production for the future or (b) defaulting first. Sadly, governments tend to spend the debt on political claims such as retirement and not on new foundations for growth. Austrians call that "malinvestment".  

Roger D.

Yelnick,

William Tehan years ago described the then credit condition as a "upside down debt pyramid". Gold at the bottom and levels of credit risk going up from there. Tehan thought the greatest problem would be moving to short term instruments as the debt spiraled higher. Eventually the pyramid would collapse as all creditors would become "suspect". We are nearing that point rapidly. He also said that interest rates would rise as debtors would pay higher rates just to survive. He never thought hyperinflation would be a risk in our credit system as it is currently structured.

Roger D.

yelnick

Roger D, love your charts, and this last comment was quite interesting, of how the end will come when the debt pyramid collapses. Interesting to envision debtors bidding up rates to survive as the edifice crumbles under their feet. That seems like the signal to get out - the final death spike.

Roger D.

"the final death spike" Yelnick

I think that sums it up perfectly, I like it.

I'm glad somebody finds my charts interesting,lol.

Roger D.

guido

I thought the goat's rear end was behind(no pun intended) door #2 and only door #1 is a mystery. Is that not right?

Hockthefarm

Thanks Y:

Apparently Jeremy Grantham thinks bonds are at insanely high prices (i dont have a link). He likes timber and large cap multinational US companies. Tonight's STU indicated that the drop in yields may have run its course. A steady rise from here would put the dent position in play I think. Regardless, lots of pennies to drop ahead.
Hock

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