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Monday, September 28, 2009
Head Fakes, Y2K, Peak Oil, Inflation/Deflation and the Doomers...
I got some email from folks I can only describe as HOPING for doom...
I have no idea what drives their desire for Armageddon. Some of these people have been hoping for the end since Y2K. Ten years is a major portion of your adult and productive life... sitting around hoping something bad happens seems a terrible waste of time.
This last "Chernobyl" (that is Wall Street trader speak for losing all of your money or going out of business, etc...) was fairly easy to see, and still none of the bloggers - yours truly included - got it exactly right. Why would we? Forecasting is failure prone. The "next blow up" will not likely come on time, as predicted, or as conveniently as the Doomers seem to wish. There were only a few guys that were "right" every time, every call, every trade. Bernie Madoff was their poster boy.
Let me give you an example. In the Long Term (let's say 10 - 20 years) I believe that the US$ will go Chernobyl, Flame Out, Blow Up (you pick), ergo I do not plan on depending on that as a store of value long term. In the short term, a US$ rally could come at ANY time and kill the shorts - dead. Look what just happened in the US equity market. Hence the term "Head Fake". Markets LOVE to use that move on traders. Yes, I think the US$ is doomed, but that doesn't mean I'd be long the other currencies here (short US$). NOTHING moves in a straight line. Markets ebb and then flow.
But back to the Doomers... Eventually, you guys will probably be right. BUT, it is going to happen so slowly - say, over a decade - that you will adjust to the changes and never really see a blow up (unless the reinflation strategy of the Central Banks is so successful that the next balloon pop is overwhelming).
Inflation? Or Deflation? Both. I think it probable that another Deflationary scare is in the offing. I DO NOT think we will experience Zimbabwe style hyper-inflation. Why would the Central Banks need to do that? If the U.S. was just another Banana Republic that might have already happened, but with the US$ being the reserve currency for the world? Nah... I think garden variety VERY high inflation will get the job done. Several years, perhaps a decade, of double digit price inflation will bring the US Budget Deficit down to a very manageable level as well as the average American's debt load - and destroy the life's work of the industrious, frugal, and productive (but in America, at least, we have always despised these f*ckers anyway - "Die Yuppie Scum!"), and it will have the added benefit of keeping the Establishment ESTABLISHED (hey, that's what inflation does - it hobbles the Nouveau Riche (first generation professionals, small business owners... folks working there way UP the ladder) to the benefit of the outright Rich).
Yea... I think 12% inflation for 4 or 5 years should do it. A loss of purchasing power of 12% per year for 5 years and an equal and opposite increase in printing would devalue the US$ by 50% or so. That would be the MINUMIM, with 10 years at 12% yielding a 75% or so decline in the value of the US$ being more likely. (And it will sneak right up on you. Nobody rioting in the streets (and rightly so). No big deal. Just a lot of time wasted working hard for something when you could have been hard at the wine, women, and song. So, if you are a Doomer that started Dooming for Y2K, you will have had to wait 20 years and it will have happened so slowly that the collapse of the US$ just won't be that satisfying.)
If one thinks about it, the above scenario dovetails nicely with the Gold $2,000 crowd. That would mean a 50% decline in the US$, and Gold $3,000 would be close enough (especially for government work) to the 75% decline in the value of the US$. Of course, Gold might succumb to the Defaltionary scare I see as highly likely. Remember, Gold is not the perfect investment. It is simply an alternative store of value, one that has worked for 8,000 years or so - somewhat longer than any paper currency has held value. Paper currency, stocks, bonds, small businesses, etc... are only markers, a place holder, indicating the owner's cut of the world's:
There is nothing else. If The Powers That Be print more currency, issue more stock certificates, lend more money, huff, puff, suck, or blow etc... you don't increase ANY of the above - not even a little bit. Capital Stock? Means of Production? These are merely 1 thru 7 and the application of 8.
Well, TPTB are printing, but even they can't print fast enough to collapse everything overnight. Sorry Doomers, this is going to take more than a day or 2, but less than 3,650 days I should think.
In the meantime, life goes on. Tonight I am going for a walk on the beach with the kids, then its off to Dairy Queen for some ice cream, and later a glass of wine with my wife.
The best line I ever heard in my LIFE was when I lived in NYC and some nitwit or other was proposing to make a park within Central Park, taking land away from children's play areas and dedicated to, wait for it.... "World Peace". A bunch of locals came over to heckle these jerks when the media got there and after a few back and forth came the line of the Century from a stereotypical NYC mom:
"World peace will come and go. My kids gotta play little league."
Brings tears to my eyes.
Posted by The Short Story Man at 7:40 AM