Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

[LargoWinch]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

You'll know it when you see it!

I was amazed when we were all discussing weather KA had already happened, "did we miss it", "too small", "not tradable" etc.

The KA phase was pretty easy to play (if you believed it, that is). 100% cash or t-bills worked rather well.

The problem as you so aptly point out is it is one thing to give up potential gains for only a currency risk during KA, it is quite another thing to hold assets that COULD produce severe losses still like stocks and commodities and other traditional inflation hedges.

I jumped in with 1/2 my cash because I though I saw an inflationary rush approaching, maybe we still are, but that's the rub. To play POOM you have to expose yourself to CAPTIAL RISK! BIG DIFFERENCE.

Note: I've been reading a lot from Jon Markman at MSN. A re-read of all of his commentary has convinced me that I was wrong and need to wait longer. (His best case is the market bottoms around the 1995 level, the year not the price. Mind you, that was the BEST CASE scenario.)

So what to do? (I'm not too worried about POOM as I will outline below)

CASH and T-BILLS rule in KA and as I said the right kind are free from capital risk (currency risk yes, capital risk no). 1-3 day t-bills is what I'm talking about or if you are a simple guy like me, that would be called "CASH" or short term CDs or something of the like.

Now for the POOM part. What asset would you be willing to hold that will do the best, or very well, during POOM and that you are also comfortable holding if KA proceeds further and you might have to eat a capital loss? BUT, that requirement to provide STAND-OUT performance during POOM is kind of a catch-22. How do you simultaneously hedge KA and POOM. Answer, you can't effectively do it (but I do have a solution, I think).

You have to find an asset class that works for BOTH conditions (stable to mild decline during KA, KICK ASS during POOM).

Stocks, could go up alot or could still fall 50%= Most likely not the best choice.

RE could go up alot but also could get alot worse and the holding costs could kill you.= if you live in it as YOUR PERSONAL HOME (and farm and garden and you have steady stable income or a pension, then I would say OK not bad, but for sure NOT talking commercial NOR investment property).

What does that leave you with? Not much, except for a couple of silvery and yellow metals. SO that is the only thing I can think of that is safe to hold for POOM. (The real stuff, physical in YOUR POSSESSION).

So I have about 20% cash for bargan hunting, food, and more guns and ammo.

Most of the rest is well, SOLID and METALLIC (75%) and a small amount (5%) is blued with a nice wood stock and a red dot sight. ( Don't laugh, you should see the ROI on guns and ammo over the past 18 months, Beat the DJIA by about 60%!) [+15-20% vs 40% decline]

Anyone else care to take a crack at this?

jtabeb my friend, I think silver is more speculative than gold and should be treated as such given its greater supply/demand dynamics.

I think also that Rogers is right and that Agriculture and Crude Oil should also be considered to provide diversification outside PMs.

I agree with EJ however; playing it safe means mostly cash and the ultimate store of wealth: gold.

[raja]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

We dismissed the hyperinflation case long ago. That is not going to happen.

I don't think that EJ would agree with your certainty that hyperinflation "is not going to happen."

The following three excerpts from post: http://itulip.com/forums/showthread.php?t=4023

"Again, as this circumstance is unprecedented, no one knows, but John Williams' hyperinflation scenario is no longer out of the question."

"As we've pointed out many times and most recently here in "How to make $301% in six years with low volatility", dollar hyperinflation is not in the cards."

The hyperinflation "scenario starts to look possible, but not before a lot of other events occur first."

What I take from this is that EJ believes hyperinflation could happen, but is not likely to happen . . . .

[FRED]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

I don't think that EJ would agree with your certainty that hyperinflation "is not going to happen."

The following three excerpts from post: http://itulip.com/forums/showthread.php?t=4023



What I take from this is that EJ believes hyperinflation could happen, but is not likely to happen . . . .

That is true. It could happen. But many other things have to happen first, and those things take time -- years, usually.

Then again, everything is happening so quickly now as compared to what many of us expected, so who knows.

[bart]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

That is true. It could happen. But many other things have to happen first, and those things take time -- years, usually.

Then again, everything is happening so quickly now as compared to what many of us expected, so who knows.

There is one person who knows:
http://www.nowandfutures.com/grins/shadow.mp3 :cool:

[ST]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

...
Then again, everything is happening so quickly now as compared to what many of us expected, so who knows.

FRED/EJ - I wonder do you listen/read Donald Coxe each week? He for one is convinced that there will be no depression and his first hand experience with '74 being far worse than what we've experienced so far in this crisis is very interesting.

He believes that the reflation will work without depression despite the economic misery to continue over the next year.

It is hard to ignore his evidence/viewpoint. Each Basic Points issue is a financial history lesson and his weekly conference calls (free to all) are always enlightening. I am a little worried that such luminaries' viewpoints are not considered - seems to me the most productive thing we can do is entertain those arguments.

I cannot put those in a nutshell here but rather they need to be read in detail. If anyone one is interested I will send them the Basic Points issues -just PM me with an email address. The weekly conference calls are here.

[Jim Nickerson]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

FRED/EJ - I wonder do you listen/read Donald Coxe each week? He for one is convinced that there will be no depression and his first hand experience with '74 being far worse than what we've experienced so far in this crisis is very interesting.

He believes that the reflation will work without depression despite the economic misery to continue over the next year.

It is hard to ignore his evidence/viewpoint. Each Basic Points issue is a financial history lesson and his weekly conference calls (free to all) are always enlightening. I am a little worried that such luminaries' viewpoints are not considered - seems to me the most productive thing we can do is entertain those arguments.

I cannot put those in a nutshell here but rather they need to be read in detail. If anyone one is interested I will send them the Basic Points issues -just PM me with an email address. The weekly conference calls are here.

I know a guy, whom I respect, who thinks a lot of Coxe's opinions, thus I am unwilling to write Coxe off. I realize there is no one who is beyond screwing up from time to time, but Coxe in my low-level assessment really screwed up with the timing of his commodities fund last summer I believe it was. As I understand it is traded on the Toronto exchange. Does anyone have a chart of it since its inception?

To my thinking Coxe, as well as Jimmy Rogers, both have seriously vested interests whenever they promote commodities.

[FRED]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

FRED/EJ - I wonder do you listen/read Donald Coxe each week? He for one is convinced that there will be no depression and his first hand experience with '74 being far worse than what we've experienced so far in this crisis is very interesting.

He believes that the reflation will work without depression despite the economic misery to continue over the next year.

It is hard to ignore his evidence/viewpoint. Each Basic Points issue is a financial history lesson and his weekly conference calls (free to all) are always enlightening. I am a little worried that such luminaries' viewpoints are not considered - seems to me the most productive thing we can do is entertain those arguments.

I cannot put those in a nutshell here but rather they need to be read in detail. If anyone one is interested I will send them the Basic Points issues -just PM me with an email address. The weekly conference calls are here.

We do not listen to or read anyone else's analysis. Two reasons: One, while we are developing a thesis, we don't want to be influenced, consciously or otherwise, by the results of other analysis of primary sources because that creates intellectual impurities in our thought process. Two, 90% of the so-called analysis out there is others' analysis recycled. You can tell because they do not show the work, how they arrived at their conclusions. Our role is to develop original insights. On the flip side that makes our analysis lengthy and, to some, boring.

We are amazed at the kinds of theories that are developed and how popular they become by regurgitation and repetition. Global "de-coupling" struck us as especially weak theory. Starting from the premise that the global economy is financialized and merchandise trade relations are secondary to finance, then a crash in the FIRE Economy is certain to be transmitted to other countries. Right premise, right forecast.

Readers did not see iTulip recommend that anyone buy commodities funds during the boom. Gold, yes, but gold is not purely a commodity, it is also a fourth currency that gets remonetized by the markets when governments reflate. That is why commodity prices are crashing priced in gold.

There will come a time to buy commodities, but we have not yet modeled when that is likely to be.

Anyone who thinks this economic collapse will blow over like the 1974 recessions is, again, operating from a false premise. The FIRE Economy didn't exist in 1974. The 1975 to 1980 inflation did wipe out most of the debt and allowed the economy to restart, and develop the FIRE Economy 1980 to 2007. We do believe an inflation will be part of the process that wipes out the debts left behind by the FIRE Economy, but the politics of can stretch the pain out for a very long time.

There was no banking or credit crisis in 1974 on the scale we are seeing today.

[Sapiens]

Supply shortage fueling used car prices

http://www.motor-trade-insider.com/i...ed-car-prices/

Supply shortage fueling used car prices

July 8, 2009 by In51der

There is a simple reason for the massive price correction on used cars at present, supply. With the new car market consistently down year-on-year, quite simply not as many cars are being built therefore not as many used cars will be generated as a result. The interesting aspect from a frustrated dealers point of view is that prices are actually similar to where they were in Jan 2008.The perception is prices have gone through the roof and the lack of supply means they have definitely strengthened but really the underlying factor is that because 2008 saw suchan unprecedented destruction of used car values the rise back up seems just as spectacular. Of course many dealers have still acted very cautiously and kept their inventories deliberately low for fear of a repeat of last year’s financial haemorrhage. Perhaps now, after 6 months of 2009 and a recession busting used car performance, the confidence factor is rapidly coming back leading to more increases in values.

The news is that the situation regarding stock availability is unlikely to change much in the second half of 2009 and although higher prices are not necessarily being fuelled by high and constant customer demand, there is a steadiness about car sales at present which is comforting to dealers and encouraging for future residual values.

We have had many reports of dealers, from across the used car spectrum, smashing their budgeted volume and profit targets and individual profit per unit has also remained solid due to prices rising steadily over this year.

Any units which need to be moved on to comply with the ageing policies are unlikely to lose much money as replacing similar cars is likely to be more costly than when the stock was bought 60-90 days ago, so swapping from dealer to dealer within a group or holding the retail margin is far easier to justify and ultimately a lot more cost effective.

Not bad, eh!

[Sapiens]

Re: Supply shortage fueling used car prices

Used Car Market Affected by Shortages

http://www.autotropolis.com/wiki/ind...y_Car_Shortage

...

Those consumers heading to the used car market could be in for a shock. The largest source of vehicles for the used car industry came from leases. Consider the used car market and the effect of supply and demand. In this case there is an increase in consumers considering the used car option as they that can’t or don’t want to afford the monthly payments required to get into a new vehicle. At the same time, there are less off-lease vehicles coming into the used car lots and so the industry is hit with a double header. More consumers wanting to purchase a commodity that has declined in availability mean, of course, higher prices. In some instances, much higher prices.

...

An increase in used-vehicle prices reflects a bad, [strike]but recovering economy[/strike]
http://latimesblogs.latimes.com/upto...d-reasons.html

These days buying a used-vehicle is going to cost you more.

...

One industry analyst said the prices for used vehicles are rising due to “universally bad” causes: fewer retired rental cars and fewer trade-ins due to weak new-car sales.

For consumers, however, the higher prices could be an early sign of a perk in the economy. The strong price increases are also “universally good” because they give consumers more equity in their trade-ins, Webb said. Buyers and sellers of wholesale used vehicles are also benefiting from the rising prices.
...

Don't call it a comeback: Used SUVs rebound

http://www.idahostatesman.com/busine...ry/837643.html

A year ago, with gasoline selling for more than $4 a gallon, drivers abandoned their gas-guzzling big vehicles for high-mileage compacts. Now, with prices in the $2.60 range, they're going back, at least in the used-car market.

That sharp U-turn in buying habits has led to a 5.8 percent increase in the price of used cars in the past year - including a 16 percent spike since the beginning of the year - and a shortage of the kinds of vehicles drivers were unloading last summer, according to the Manheim Used Vehicle Value Index.

Fewer used cars are being traded in now, creating a supply shortage, the Manheim report said.

The biggest price gains since last June were for pickup trucks (up 27 percent) and sport utility vehicles (25.8 percent), while compacts fell almost 10 percent and midsize cars were off by 3.4 percent.

...

Consumers with bad credit are good for keeping used car prices up.

[don]

Re: Supply shortage fueling used car prices

A few months ago it was widely reported that the national used car supply had doubled. We all saw the pictures of a significant over stock of new vehicles at debarkation points, stacked up on test tracks, warehoused on ships, etc. It's no secret that consumer car demand has plummeted. Has all this turned on its head because rental car businesses are keeping their vehicles now instead of their traditional low mileage turnover? How are these factors reconciled with these postings?

[Sapiens]

Re: Supply shortage fueling used car prices

A few months ago it was widely reported that the national used car supply had doubled. We all saw the pictures of a significant over stock of new vehicles at debarkation points, stacked up on test tracks, warehoused on ships, etc. It's no secret that consumer car demand has plummeted. Has all this turned on its head because rental car businesses are keeping their vehicles now instead of their traditional low mileage turnover? How are these factors reconciled with these postings?

Those cars are still there, the consumer does not have the credit available to purchase them.

[cindykimlisa]

Re: Supply shortage fueling used car prices

After I purchased my new Honda accord a few weeks ago, the dealer and I were chatting and he said this car should especially hold its value well because there were so few 2009's sold and it would therefore have a higher demand for those seeking a used car.

Also, it was the only new car I ever drove off the lot that had a higher value off the lot than on the lot: The loan book value was more than I paid the dealer.

[bart]

Re: Supply shortage fueling used car prices

[FRED]

Re: Supply shortage fueling used car prices

http://www.motor-trade-insider.com/i...ed-car-prices/



Not bad, eh!

Merged your thread with this one. Events conform to this forecast on this thread from Dec. 16, 2008:

Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation.

[cobben]

Re: Supply shortage fueling used car prices

Similar situation in Sweden, buying a new car is "always" a bad deal, but over the next few years may be less of a bad deal than normal as long as volume stays down.

The abers are that demand may not pick up again above current low levels any time soon, the potential overhead supply glut of vehicles sold in recent better years may be delayed but will eventually come on-line, and the joker would be cheaper electric cars appearing much sooner than anyone now expects.