Saturday, February 28, 2009
The time to have been worried about financial assets and deflation was 1 year ago. I am sticking with my Dow 6000 bottom (unless the oil import numbers decelerate further), 650 on the S&P.
Actually, I should say that I give the probability of Dow 6000 holding a 80% probability, and a Dow 5200 a 90% probability.
This is much like 3 card monty or "the shell game". You gotta keep you eyes on what is coming, not what has been.
The U.S., and the rest of the world really, is between a "Rock and a Hard Place", and Obama has chosen the "Rock" (I have no idea which would have been better).
The U.S. budget will total $3.6 TRILLION, with a deficit of $1.75 TRILLION in 2009, and $1.2 TRILLION in 2010 (anybody want to bet those projected deficits will prove optimistic?), with the 2009 deficit a staggering 12.6% of GDP. Ok so far?
Where does the administration, Wall Street, the Media, WHOEVER propose to GET the nearly $3 TRILLION in financing we are going to need over the next 2 years? The entire f***ing world has less than $7.4 TRILLION in reserves, and that was last year's data. Since that time world trade has contracted briskly, and other governments have had need of their reserves to finance their OWN deficit and stimulus spending, (China alone has budgeted over $500 BILLION), so that number is surely less than $6 Trillion as i write this.
Did I mention that the U.S. will not see a budget deficit of less than $1 TRILLION at any point in the next decade or 2 (or 3)? Or that just to get to the $1.2 TRILLION deficit in 2010, the Obama budget claims the U.S. will grow by 3.2 % in 2010, 4% in 2011, and 4.6 % in 2012? If not, then what? What's "Plan B"? Look, I don't make this stuff up. I am a career analyst and when somebody tells me a + b + c = d, I check their math. If it does not add up, it does not add up.
For the guys working the lights, there is only ONE lever left to pull. They cannot borrow from Martians. They will have to monetize some (or all ) of the national debt. This is an absolute CERTAINTY. The only debate is WHEN, and that WHEN just ain't that far off in the distance.
If you have been a diligent worker and saver, now is the time to take that dream vacation, climb Kilimanjaro, vist the Taj Mahal, dive into the jaws of a harem... whatever. With whatever is left over, buy productive farmland, precious metals, livestock, timber, fishing boats, a Mine,
Ag futures... (you are on your own as far as timing).
This scenario will end our deflationary experience, although I can't say exactly when. My sense is that the turn will be swift and stunning - a "shock and awe" kind of thing. Kind of like the equity market over the past 6 months.
Mentatt (at) yahoo (d0t) com
Posted by The Short Story Man at 5:38 AM