Market crash: are we there yet ?

[wind_magic]

Yes Trop, it is ugly.

I still like more deflation from here. I know all the signs are there for a lot of currency devaluation, and over the long term I'm totally there for that, but in the next year or two I still think we're going to see a lot of $us buying. At this moment the DJIA, foreign currencies, precious metals, everything is rallying together because yes we are having $us selling right now and everything is moving together because of that, but I think in the next year we are going to break some new lows on the DJIA with all the $us and Treasury buying that goes along with that. Just my hunch.

[danjarch]

Windy, If inflation really takes off, would it be possible for the DJIA to increase instead of decline. I ask this question because if one was looking for a way to ride out inflation and felt physicaly holding gold was too risky, and gold certificates were overpriced, add in that other comotities are too volitile for the average investor, wouldn't holding stock in companies like Con-Agra, IBM or an indexed fund be a good hedge against inflation.

It seems to me that having a small piece of a bunch of companies that supplies basic needs would be about the same as owning gold. Not sold on this theory but wandered what your thoughts would be on the subject.

Same question to you Rick

[TropicCat]

Two weeks ago was the inflection point when both the dollar and long bonds fell out of bed. Gold has been performing as it should by rising when the dollar is falling and is still the investor's safe bet.

Did anyone read the Reuters story by Alister Bull on Friday? The headline: Federal Reserve puzzled by yield curve steepening.

Translation, the Fed doesn’t know what is going on, but they are really scared. According to the article, the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Perhaps the fact that no one wants to buy long term bonds when the Fed is printing them as fast as it can might have something to do with it? Why is it that experts are "surprised" when faced with the obvious?

Hyper inflation is much closer than you think.

[Selkirk]

Originally Posted by danjarch

Windy, If inflation really takes off, would it be possible for the DJIA to increase instead of decline. I ask this question because if one was looking for a way to ride out inflation and felt physicaly holding gold was too risky, and gold certificates were overpriced, add in that other comotities are too volitile for the average investor, wouldn't holding stock in companies like Con-Agra, IBM or an indexed fund be a good hedge against inflation.

It seems to me that having a small piece of a bunch of companies that supplies basic needs would be about the same as owning gold. Not sold on this theory but wandered what your thoughts would be on the subject.

Same question to you Rick

During the early 80's/late 70's, when inflation was a real factor, the stock market hardly budged. I was in the business world at that time and I remember how hard it was to make money - you just could not raise your prices fast enough.
And therein lies the problem during periods of inflation; companies simply cannot keep up.
And interest rates! Making money is hard enough, but when you have to borrow it at 10%!.....Well, I'm sure you see.

You didn't ask me, but I am not a fan of gold. There are two many hustlers out there.

I like Exchange Trading Funds (ETF's). Using ETF's I can make money when the stock market is rising, make money in foreign countries, make money when the market is falling, make money is specific industries, and I can get in and out quickly.
This year I am making money in Brazil.
Here's an ETF encyclopedia for you.
Stock-Encyclopedia.com ETF Guide

Best of Luck,

[copacabana]

TropicCat, have a look at the discussion on the steepening yield curve here:

Market Skeptics

[TropicCat]

Originally Posted by danjarch

It seems to me that having a small piece of a bunch of companies that supplies basic needs would be about the same as owning gold. Not sold on this theory but wandered what your thoughts would be on the subject.

Same question to you Rick

Other than commodities,there's always an insurance policy. These have been mentioned. One is called a CMS (Constant Maturity Swap) Rate Cap, which is the equivalent of buying puts on long-term Treasuries. These CMS Rate Caps are options to bet on interest rates rising for 10-year or 30-year Treasuries.

If inflation happens the way I'm saying, long-term Treasuries are just going to explode.

[TropicCat]

Originally Posted by copacabana

TropicCat, have a look at the discussion on the steepening yield curve here:

Market Skeptics

Yes, I had read some of the articles mentioned. Good call on your part as this discussion is the crux of the matter. The poor slobs in the stock trenches won't even know what hit them when the market wakes up to the reality of out of control fiscal policies here in America. This is the reason why I agree with Roubini and call this market rally a Dead Cat Bounce.

Back when election rhetoric was in full swing I posted numerous times that no matter who was elected President, US taxes had to increase. There simply is no choice. It's also why I called Obama a one term President.

What the world is facing is fiscal Armageddon. Windy and I have been arguing the "When", not the "what".

Never in the history of the world has the reserve currency faced massive devaluation. Politicians are quiet on this subject, the Fed is scared to death, while pundits tell us recovery is right around the corner. Actually, they are touting stocks and getting as liquid as they can while the poor market players are buying the rally.

It's going to get very nasty out there.

[wind_magic]

Originally Posted by danjarch

Windy, If inflation really takes off, would it be possible for the DJIA to increase instead of decline. I ask this question because if one was looking for a way to ride out inflation and felt physicaly holding gold was too risky, and gold certificates were overpriced, add in that other comotities are too volitile for the average investor, wouldn't holding stock in companies like Con-Agra, IBM or an indexed fund be a good hedge against inflation.

It seems to me that having a small piece of a bunch of companies that supplies basic needs would be about the same as owning gold. Not sold on this theory but wandered what your thoughts would be on the subject.

Same question to you Rick

If there really were hyper-inflation then your question would be a trick question, because DJIA stocks are denominated in $us, so if $us devalues then you have no way to measure the performance of the DJIA in $us currency, you would only be able to compare its performance to other assets that both have $us as a cross. Said another way, if your stock doubled in price that wouldn't mean much if housing, gold, lumber, oil, etc, tripled in price.

That said, it depends on your business and what your companies situation is. Obviously you don't want to be in the business of loaning money unless it is adjusted for inflation (not using CPI of course, but a real inflation measure like the price of U.S. stamps), and you probably wouldn't want to be in the financial services industry at all because it would become impossible to predict rates or anything else with enough certain to insure you were going to make any money. Like a previous poster said, it is hard to even be in manufacturing or any other business that deals in commodities during periods of high inflation because your costs keep increasing faster than your prices, you can't stay ahead of it, kind of the reverse of what is going on today. So, yes, it is possible to make money in stocks, it is always possible to make money in stocks, but it isn't trivial like it has been during this debt bubble where you just have to throw a dart and whatever it hits you buy and look like a genius when it goes up.

The simple fact is we've never gone through a global currency devaluation, countries around the world have never all tried to devalue at the exact same time, so we really have no idea what would happen if it got out of control. You can look at Iceland right now to see what it might be like, but we really have no way to know. Probably the only U.S. industry that would be totally safe would be companies that manufacture paper and green ink.

[wind_magic]

I wanted to add one note to what I wrote above and that is that it is almost silly to even talk about what to be invested in during a hyper-inflation because it is kind of like talking about what beverages and snacks are available during a plane crash.

Hyper-inflation is such a terrible thing that nobody survives with finances intact, it affects absolutely everyone when it happens. It is the final act of a bankrupt system when all the bills finally come due and all the empty promises are revealed for what they truly are, when savings and debts that couldn't be taxed away are finally just defaulted on and printed away, it is nothing short of a complete financial collapse and an outright default.

The kinds of things that happen during such times usually leave people with more important matters to attend to than their 401-k's.

[copacabana]

In the upcoming hyper-inflation I believe it would be wise to get your money out of USD and the USA and into a currency and assets that will hold their value. Food, oil and other commodities and precious metals would be a good bet in inflationary times. I'm afraid I don't see much light at the end of the tunnel for the American economy, at least not for many years. It will take a generation to climb out from under all that debt...