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    Monday

    Black-Hole-That-Is-The-U.S.-DollarEcon Monday My apologies for another econ post, but I suspect things are reaching a fever pitch right now, so . . . * * * * * * * I wrote on Saturday that it's probably time to get out of the market. The mad geniuses at Zero Hedge vehemently disagree. In this (perhaps unhinged) post, they're predicting that the monetary eschaton is coming fast: Helicopter Ben will drop trillions from helicopters in order to prop up the markets. Everything in this environment will rise: stocks, bonds, and (especially) metals. Oh what to do? I don't know, but I am going to sell large amounts of my cash and deflationary investments (read: SH) and buy into commodity funds (Gabelli Gold and Central Fund of Canada). Do what you want, but if you're taking investment advice from an attorney and armchair philosopher, you're nuts . . . or maybe no worse off than taking advice from the mainstream. * * * * * * But wait. Maybe the folks at Zero Hedge are going long on metals in the immediate near term and are "hyping" the investments now, in order to get a quick hit in three days. It's possible. It's a very popular blog. I'm guessing they get around 100,000 visitors a day. Maybe they're playing me like a tool, putting out the post and waiting for smaller bloggers like me to regurgitate it and then the word will spread like cyber fire. So I guess this is the dilemma: I'm Bernanke's fool or Zero Hedge's tool. Hmmmmm. Zero Hedge seems sincere, they're Austrians, they hate the federal government, and, in that post, they're touting everything--stocks, bonds, metals. They like anything except cash, so it's not like they're hyping a particular investment. It's impossible to know, but I'm going with Zero Hedge. A guy has to cast his faith--and money--someplace. * * * * * * * A friend recently told me that you shouldn't invest in something you don't understand (we were looking at a complicated bull-bear fund). I told him that I agreed, but that, as a practical matter, every modern investment vehicle comes with a ton of uncertainty. I was listening to EconTalk last week, and a reputable economist said he winced when he heard Federal Reserve officials talk about Fannie Mae mortgage resales because he could tell that they really didn't understand how the market worked, but were holding forth like they were masters of understanding. Everything is so complicated and layered these day. Every investment is slathered with uncertainty. Sure, I understand the concept of a mutual fund--a fund manager invests in a batch of stocks, thereby giving you cost-effective access to a batch of stocks and professional advice--but how does the fund really work and what happens there day-to-day? Global CrossingWhat is the net effect of fees? How are particular stocks selected? How does the money from gains actually end up in my account? How do I know the fund is solvent and not disbursing dividends from principal (as recently allegedly happened with a major dividend fund)? Does the fund hold positions with bogus accounting (ala Global Crossing)? Is the fund manager having a good day? A sober day? Maybe undergoing a divorce and is thereby distracted? Let's face it: Every investment is a leap of faith, and that's without even taking into account the uncertainty of the future.

    5 Responses to “Monday”

    1. Steve Nicoloso Says:

      I’ve been doing much the same thing, Eric, as far as I’ve been able (still waiting on my Brokerage Link for my 401k which by default offers virtually no protection against currency devaluation)… but I’ve dumped over six figures worth of bonds (and as much cash as I deem responsible) over the last month, and went long on iau, gsg, slv, ews, and vnm (and recently a little fxf). You’ve probably seen it via link from ZH, but in case you haven’t, take a look at Gonzalo Lira’s excellent post on How Hyperinflation will happen”. (Actually almost every by Gonzalo Lira is erudite, clearly written, and hauntingly plausible…

      As I see it, the run on gold in particular (and commodities generally) will continue until the fed acts decisively to protect the dollar, and by acting decisively I mean to raise the discount rate well above (above, yes you read that right!!) the CPI. And in order to do that, it would have to plunge US-GDP into a steep minimimum 10% dip (my guess is closer to 20%) unwinding nearly all of the Greenspan-Bernanke era bubbles. This would also raise bond yields to the point that over a year or so every dollar vacuumed up in Federal taxes would go simply to service the debt. It would work: After a brief but excruciating deflation, happy times would come again, but no one (with any power at any rate) inside the beltway, if they have balls at all, has the balls to do that. The alternative: the natural end of the USD. Hopefully, if and when that happens, adults will finally take control of USG.

    2. Eric Says:

      Ah, another Lira fan. I’ve just started reading him.

      Great comment, btw.

    3. Eric Says:

      BTW: The precious metals crowd doesn’t like SLV. They say the company doesn’t hold all the silver it says it has. Maybe they’re nuts; I don’t know, but I now use SIVR.

    4. Steve Nicoloso Says:

      Oh, I am beginning to have serious doubts about all commodities-based ETFs. I just read this last night. It would be completely unsurprising that a silver backed ETF couldn’t take delivery and hold all the silver; and it would eat a big cost if it did. A billion dollars of silver would be expensive to store and protect. A billion dollars of gold would fit in my bathroom (of course it would cause that part of the house to collapse… but sizewise…).

      Gold, of course, is a different kettle of fish, as it isn’t really a commodity (its ballast money), and therefore seems to suffer very light contango. In fact, some of the tinfoil hat crowd (broken clocks-n-all-that) are saying gold is ready to fall into permanent backwardation. So I feel a little safer in gold etfs. Less so in silver, because it’s very heavy per dollar, and very much less so in ordinary commodities. I mean what the heck am I gonna do with a 100 barrels of light sweet crude? But, in general, what’s a body to do? Obviously, owning physical gold and silver is the way to go. But, insofar as the majority of one’s “savings” is in IRAs and 401ks, the only way (that I know of) to bet against dollar-denominated assets in a big way is to use the ETFs. My hope is that paper gold, while it may not do as well as actual gold, will still beat paper paper.

      I’ll definitely check out SIVR. Thanks for the tip!

    5. Eric Says:

      Steve:

      I talked with my investment advisor for about 20 minutes today. He read the article, and he doesn’t know what they’re talking about. He says DBA and DBC have both performed with the index, almost identically, for the past two years. He’s not sure why they’re referring to a “weighted average,” since the fund merely says it strives to perform with the index . . . which it has been doing. He’s not a big fan of commodity ETFs (he’s a stock guy: main street-type funds, fairly vanilla), but he thinks the article treated the commodity ETFs unfairly (that’s his initial reaction; he’s going to do some more checking for me).

     

     

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