Tuesday, August 9, 2011
Sanity Check
The Fed indicated today that it was likely to keep rates at an exceptionally low level until at least mid-2013. The market listened and did Ben's bidding. My take: the economy is teetering and recession is likely. In other words, whatever your strategy was yesterday, I don't think anything that happened today (between the market shooting up and the Fed announcement) should cause it to change.
Monday, August 8, 2011
Parlor Tricks and Market Crashes
A lot has happened since the last time we "spoke".
An entirely predictable debt deal was reached at the last moment and (surprise, surprise) it had nothing resembling teeth. To put it into perspective, it reduces the deficit by $2 trillion over the next decade, or so the story goes. But, what that really means is that instead of a national debt of (likely) close to $30 trillion by that point, it will instead only be $28 trillion. Victory for the good guys!!! Now, if only there was any suggestion that the economy had high prospects for recovery and we could expect actual growth to resemble anything that remotely matches the growth rate of debt.
But, even with that lame-o deal, the plot only thickens. Because, this past Friday, in a totally telegraphed move, S&P downgraded the U.S. from AAA to AA+. In fairness, and Alan Greenspan even commented on it over the weekend, the threat of actual default doesn't exist simply because the U.S. can always print money to pay off its creditors -- there is no principal risk. But, again, that's not the point. The issue at stake is whether the world is slowly starting to get it. There are no free lunches and prosperity won't be found through the printing press.
In other news, gold is surging, commensurate with an asset and form of money that has been around for thousands of years and is no one else's liability. This move is extreme, but it is also appropriate. And, from the sounds of talking heads, it is viewed with skepticism -- all positives. Is a correction likely? My attitude has always been that nothing goes up in a straight line. But, the trend most definitely remains your friend.
On a related note, I also think the season has come for me to add to some of the precious metal stocks that I like. Not that they can't be taken down with the rest of the market, but eventually the worm will turn. And I want to be at the party.
An entirely predictable debt deal was reached at the last moment and (surprise, surprise) it had nothing resembling teeth. To put it into perspective, it reduces the deficit by $2 trillion over the next decade, or so the story goes. But, what that really means is that instead of a national debt of (likely) close to $30 trillion by that point, it will instead only be $28 trillion. Victory for the good guys!!! Now, if only there was any suggestion that the economy had high prospects for recovery and we could expect actual growth to resemble anything that remotely matches the growth rate of debt.
But, even with that lame-o deal, the plot only thickens. Because, this past Friday, in a totally telegraphed move, S&P downgraded the U.S. from AAA to AA+. In fairness, and Alan Greenspan even commented on it over the weekend, the threat of actual default doesn't exist simply because the U.S. can always print money to pay off its creditors -- there is no principal risk. But, again, that's not the point. The issue at stake is whether the world is slowly starting to get it. There are no free lunches and prosperity won't be found through the printing press.
In other news, gold is surging, commensurate with an asset and form of money that has been around for thousands of years and is no one else's liability. This move is extreme, but it is also appropriate. And, from the sounds of talking heads, it is viewed with skepticism -- all positives. Is a correction likely? My attitude has always been that nothing goes up in a straight line. But, the trend most definitely remains your friend.
On a related note, I also think the season has come for me to add to some of the precious metal stocks that I like. Not that they can't be taken down with the rest of the market, but eventually the worm will turn. And I want to be at the party.
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