[gnm]

Short, others,

So a lot of this points to Dennigers "crushing deflation" - I have a question - Say I had money in oil industries/commodities/similar that has been doing well on the recent oil/commodities rise- When should I consider moving it and to what given a "crushing deflation" type scenario? Or just pull it all out as cash - taking a 401k hit for instance.

-G

[patience]

gnm,

What have you got to lose in either direction? Assess that, considering that you could have a dire need for cash in the event of a bank holiday, or a drastic change in the markets that could go way up or way down.

From what I have read on Tickerforum, those people are almost all strictly daytrading, trying to respond to the short term moves, OR, they are sitting it out in CASH. Karl is giving a longer term outlook with some of his info, but the one that hit me like a board was the "Ten Things You Should Do Now" Ticker essay, indicating he thinks we don't have a lot of time to respond. I took that advice in small doses over the last year and a half, and am entirely out of paper investments. Glad of it, too. Investing now is like playing with matches in a fireworks factory, IMHO.

It has taken the past 18 months to properly put to work the money we took out of the markets. Going to hard assets does not happen with a call to the broker, or the click of a mouse.

[shortonoil]

$this->bbcode_second_pass_quote('', 'S')hort, others,

So a lot of this points to Dennigers "crushing deflation" - I have a question - Say I had money in oil industries/commodities/similar that has been doing well on the recent oil/commodities rise- When should I consider moving it and to what given a "crushing deflation" type scenario? Or just pull it all out as cash - taking a 401k hit for instance.

-G

[DantesPeak]

While the effects of the Fed’s money printing don’t appear to be doing much for the US money supply, all that new money still will have some consequences down the road. Foreign central banks are buying US dollars faster than ever, and to do that, those various countries are printing up money in their currencies to buy US dollars. China would be the best example of this. Not only are they increasing their money base and money supply at a rapid pace, but all that that Chinese money has a powerful impact on the commodity markets.

Also there is a possibility of a dollar carry trade where US dollars are borrowed at low short term interest rates and invested for higher yields or speculation elsewhere in the world.

This is why I think we are in for a very dramatic move up in basic commodity/food prices in terms of US dollars - eventually leading to some type of US dollar/bond market crash that will disrupt US imports and the financing of the federal budget.

[patience]

What Dante said! +1

[threadbear]

The point is being made, that money isn't being loaned out by banks. It's just sitting in their capital reserves. You would think that would cause prices to fall, and maybe it will, but prices right now are going up. Why? Patience describes going to a store the other day, where business has contracted sharply, and finding an item that has recently been priced much higher. According to economic theory, fewer circulating dollars in the economy, encourage retailers to drop prices. Bunk. It's about extracting what you can from the few people who are able or willing to buy.

This seems to me to be less Japanese style and more Argentine style. It seems like a supply shock generated by very high fixed costs, as Patience describes in his post. Is there any reason to expect this to change?

[ColossalContrarian]

$this->bbcode_second_pass_quote('threadbear', 'T')he point is being made, that money isn't being loaned out by banks. It's just sitting in their capital reserves. You would think that would cause prices to fall, and maybe it will, but prices right now are going up. Why? Patience describes going to a store the other day, where business has contracted sharply, and finding an item that has recently been priced much higher. According to economic theory, fewer circulating dollars in the economy, encourage retailers to drop prices. Bunk. It's about extracting what you can from the few people who are able or willing to buy.

This seems to me to be less Japanese style and more Argentine style. It seems like a supply shock generated by very high fixed costs, as Patience describes in his post. Is there any reason to expect this to change?

[shortonoil]

First of all, Great to have you back DP. We’ve missed you.

threadbear said:

$this->bbcode_second_pass_quote('', 'T')he point is being made, that money isn't being loaned out by banks. It's just sitting in their capital reserves. You would think that would cause prices to fall, and maybe it will, but prices right now are going up. Why?

[odegaard]

$this->bbcode_second_pass_quote('threadbear', 'T')he point is being made, that money isn't being loaned out by banks.

[Niagara]

An outstanding article on the Ticker Forum.
http://market-ticker.org/archives/1091-Ten-Things-You-Must-Do.html

I love this:

$this->bbcode_second_pass_quote('', 'B')ut math doesn't care about politics. Math IS.

[DantesPeak]

It was only recently the Fed stopped pushing a plan to issue its own debt. No doubt they had planned to finance that debt by issuing Fed fiat money to buy those bonds. It boggles the mind to think the Fed would be buying its own paper debt with its own paper money.

The complex inter-reaction of the Fed's policies on the economy while doubling the monetary base are as yet unclear, but it is clear that if the Fed didn't buy about $1 trillion in mortgage backed debt and US treasuries the bond market would have collapsed by now due to lack of any alternative buyers. The total amount of real money available for investment around the world can't be much more than $1 trillion per year, and with spending deficits exceeding that amount, a sale of other assets and true deflation would have resulted to finance such a deficit.

Therefore the Fed has no choice but to continue monetizing the deficit at a rapid rate. Eventually all kinds of buyers, including those foreign governments buying US treasuries at a $500 billion pace will just give up as they see the Fed‘s money base spiral to new inflationary heights.

There's a bond market crash coming, although it may be postponed for a few months or more before the US government sucks in what’s left of available savings in the country and the world. It's possible that foriegn governments, like China, will sacrifice their accumulated savings to save the dollar - but how far will they go to save a lost cause?

In the end, creeping depletion and lower energy returns on energy invested will erode away what’s left of the world’s investment pool, and the US bond market and probably the dollar too will sink under the weight of massive budget deficits trying to stave off peak oil.

[Troyboy1208]

would it be wise to move my investments out of the bond market and into a money market account? I don't know if money market accounts are different than bond markets

[DantesPeak]

Generally regular US bonds with a maturity about five years or less do not see their market value severely affected by changes in interest rates. I therefore would not recommend that any invest in any thing other than a short term or intermediate (about five year) bond fund. Even the latter may not preserve principal well in extreme market moves.

Brokerage run money market funds usually buy very short term securities like treasury bills maturing in six months or less.

[patience]

Troyboy 1208,

Here's my condensed version of Karl Denninger's 10 things to do NOW.

-Don't believe that the recession is over.
-Get out of debt.
-Start saving.
-Figure out how to make it without a job.
-Pull money out of any bank that took TARP funds.
-If you have any stocks, sell or hedge them.
-Prepare for an economic "sudden stop", that is, the US economy comes to a screeching halt.
-Don't count on metals (gold and silver).
-Acquire legal means of self defense.
-Figure out who your friends are-and are NOT.

All makes sense to me, no matter what happens.

Read his whole essay here: http://market-ticker.org/archives/1091- ... st-Do.html

[Troyboy1208]

Ok so I should be ok with short term bonds/money market. I already have half of my money in bonds and money market funds so i dont think my exposure is too bad
Thank you for the prompt replies

[shortonoil]

DantesPeak said:

$this->bbcode_second_pass_quote('', 'T')here's a bond market crash coming, although it may be postponed for a few months or more before the US government sucks in what’s left of available savings in the country and the world. It's possible that foriegn governments, like China, will sacrifice their accumulated savings to save the dollar - but how far will they go to save a lost cause?

In the end, creeping depletion and lower energy returns on energy invested will erode away what’s left of the world’s investment pool, and the US bond market and probably the dollar too will sink under the weight of massive budget deficits trying to stave off peak oil.

[threadbear]

Thanks one and all for excellent analysis, particularly Shorty and Patience. Forgive my idiocy here, but-- What exactly is the definition of "bond dislocation"?

[patience]

Bond dislocation is the price of bonds falling continuously for a comparatively long time, say a few %/ month over several months, with the obvious implication that there is too much risk in them for the buyers' taste, or simply oversupply of bonds for the amount of available investors.

With foreign investors, like China and the Saudis, buying less, the US Treasury is having some trouble selling the longest term bonds, probably due to the expectation of diluted currency over the long term. As this problem begins to hit the shorter term bonds, some analysts are worried that it could mean a dislocation has begun.

[threadbear]

$this->bbcode_second_pass_quote('patience', 'B')ond dislocation is the price of bonds falling continuously for a comparatively long time, say a few %/ month over several months, with the obvious implication that there is too much risk in them for the buyers' taste, or simply oversupply of bonds for the amount of available investors.

With foreign investors, like China and the Saudis, buying less, the US Treasury is having some trouble selling the longest term bonds, probably due to the expectation of diluted currency over the long term. As this problem begins to hit the shorter term bonds, some analysts are worried that it could mean a dislocation has begun.

[shortonoil]

patience said:

$this->bbcode_second_pass_quote('', 'B')ond dislocation is the price of bonds falling continuously for a comparatively long time, say a few %/ month over several months, with the obvious implication that there is too much risk in them for the buyers' taste, or simply oversupply of bonds for the amount of available investors.

With foreign investors, like China and the Saudis, buying less, the US Treasury is having some trouble selling the longest term bonds, probably due to the expectation of diluted currency over the long term. As this problem begins to hit the shorter term bonds, some analysts are worried that it could mean a dislocation has begun.