Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Any of you iTuliper have a good questions suggestion?

If it is recorded, I will upload on Utube.

Yes I have one big question, and I would be grateful If you could ask the following question:

When El-Erian was talking about his concerns about "other" "innovative" "structured finance elements" which "we can't even model" that are "more problematic than CDS", was he referring to a new funky form of 144A OTC derivatives traded in dark palces such as the Portal Alliance?

And if the answer is positive and a follow up is possible, It would be nice if you could ask him what exactly are these new thingies and generally how he perceives the influence of 144A market on the regulated stock and commodities markets.

(Every guru speaks recently in very vague terms about structured finance derivatives that can create problems, but no one specifies what exactly are these derivatives. They are not CDS, mortgage CDO, auction rate securities and I don't believe they are talking about commodities based investment/debt intruments. It drives me crazy )

[LargoWinch]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Lol $#*, that is quite a technical question. I will write it down and see what I can do.

I may get multiple job offers after asking something like this!

[LargoWinch]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

I would ask him the following:

1) Walk through his arguments for commodities in general: is it because of a population increase, or is it a result of a wealth-transfer from the West to the more populated East?

2) Isn't China constrained by the US' ability to consume? If the dollar crashes, isn't that a nightmare scenario for China, or is he assuming that the US won't be able to re-industrialize quickly enough or secure resources, i.e. have the third-world conundrum of not enuf hard currency to import?

3) Wall st says China's banks are a disaster: everyone knows this. Why WON'T they blow up and bring down China with it? (I think the gov is more involved than ppl think, and do have some control over this).

4) Where does he park his cash? Yen? What does he do for income while he waits for his commodities to perform? YTD, his indices have done horribly, and so is he sitting on munis or what? The BoJ won't let the Yen appreciate, and will slaughter savers to keep exports a hummin'. Ask him about that.

5) How will China weather the coming downturn? Everyone is going to be affected, and they don't have enough reserves to bail-out the economy for years. What is the next step for China's economy, aside from graduating to a less energy-intensive profile?

Good questions there for sure. I am writing down...

You guys gonna make me look like a genius.

I love the Yen question, cause we all know Jim looovvveees the Yen!

[metalman]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Good questions there for sure. I am writing down...

You guys gonna make me look like a genius.

I love the Yen question, cause we all know Jim looovvveees the Yen!

- will falling demand in asia lower commodity demand and prices?

- what matters more for the commodity market long term... the dollar demand or dollar demand?

follow-up on these 2006 themes. did he get it right?

Janszen: During this commodities boom, stocks can be expected to decline, correct?

Rogers: Yes. They tend to be inversely correlated. The fundamentals that drive up commodities prices are not good for stocks. Rising commodities prices increase the input costs for companies in many industries, from housing to consumer goods. More expensive oil, for example, eventually shows up in the cost of making goods that contain a lot of plastic, so profits get squeezed as manufacturers are reluctant to pass these additional costs onto consumers, who will buy less product if prices are raised to quickly.

Janszen: You mention in your book that oil, gold and other commodity prices collapsed between 1980 and 1982. You attribute this to the fact the rising oil and gold prices in the early 1970s motivated exploration and that by 1978 world oil supply was greater than demand for the first time in many years. This started to impact oil prices in 1980. But didn’t Fed Chairman Paul Volcker’s policies to kill inflation with Fed funds rate hikes up to 19% in 1982, and the on and off three year recession that produced in the US cause this collapse in commodity prices? Inflation declined from an average of 18% in 1980 to -.04% in 1983. Surely that had a big impact on demand and thus prices?

Rogers: Volcker certainly deserves a lot of credit but the market was well on its way to solving the oil price problem on its own. The government was having to print a lot of money to pay for the war in Vietnam as well as to pay for oil that was in short supply relative to demand, and this during recessions, mind you. So for oil, the inflation was caused by a supply-demand imbalance. For gold, the price that peaked at $870 in 1980 (around $2000 in current dollars) was driven by investors’ expectations of future inflation. In investors’ experience, inflation is all mixed together, the kind created by a shortage of oil relative to supply and the kind created by the government to finance a war. Even after the printing to pay for the war and other government spending was reduced, inflationary expectations were built into contracts and people’s expectations generally. This is the inflation that Volcker attacked and did so successfully.

Janszen: So gold went down because of Volcker and high interest rates and oil went down because of increased supply and also high interest rates. In other words, it's best to think of commodites themslves as money, whether it's oil or gold or wheat.

Rogers: Well put.

Janszen: Where does that leave us with gold and other precious metals today? You mention in your book that 75% of all money going into exploration is going into gold mining. That certainly doesn’t bode well for the supply side of the gold price equation. How about the demand side?

Rogers: Don’t get me wrong. I own both gold and silver. But it’s not an investment in commodities like wheat, sugar or corn. Gold and silver are insurance against the kind of inflation that Volcker was fighting in the early 1980s and currency related risk. If things go haywire for the dollar and currencies generally, demand for gold and silver will go through the roof. So everyone should have some, as insurance. But keep in mind if the world really gets into trouble, the demand for wheat and corn will be even higher, so their price is likely to increase even more. Gold and silver investors need to expand their horizons with respect to covering these kinds of risks.

http://www.itulip.com/jamesrogers1.htm

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Lol $#*, that is quite a technical question. I will write it down and see what I can do.

I may get multiple job offers after asking something like this!

It's not really a technical question and Jim Rogers should have a pretty good idea about the issue and should be able to give a good answer ... if he wants to talk about it.

I'm talking about the proliferation of cross linked "dark pools" and the resulting private nonregulated securities (or so called 144A unregistered securities) markets , such as GSTrue, Opus-5 etc., and the big union of almost all such private markets in the much trumpeted Portal Alliance.

Here is the party line about the "great benefits" of these parallel, secretive and unregulated markets, explained in some detail if you are unfamiliar with the issue:

History in the making: the evolution of the 144a market

I have nothing against private equity deals, and I believe that the government should not interfere in private transactions. But what happens now with all these "innovations" is nothing else than transforming SEC and any regulatory body into a joke.

These private unregistered "dark pool" markets can be the perfect instrument for securities fraud and manipulation of the legal regulated markets.

Look for example what happened with the Aventine IPO:

http://www.forbes.com/forbes/2008/0107/032.html

Not ready to take your company public? Take it semipublic. Do a Rule 144a offering. The Securities & Exchange Commission rule allows companies to raise capital while dispensing with such formalities as registering with the SEC, filing financials or following accounting standards. The securities can be sold only to sophisticated investors, to wit, hedge funds and investment advisers with at least $100 million under management. Issuers are also exempt from the nitpicking requirements of Sarbanes-Oxley.
Although most of the $2 trillion in Rule 144a securities outstanding represents debt, the equity portion is nonetheless big enough to eclipse the public market in recent issuance. Through the first nine months of 2007 companies raised $300 billion in 144a equity, compared with $215 billion for public markets, reports Dealogic.
[...]
Individuals should keep a sharp eye on this market--not to buy in but to avoid being whacked by the tail end. Dealogic says that 20 of the 85 PIPOs have led to public offerings, which then tend to perform poorly. During the first 12 months after going public the average PIPO did 21.5% worse than a simultaneous investment in the s&p 500, while new issues as a whole beat the markets by 7.2%.

Example: the $1.6 billion (sales) Aventine Renewable Energy. Formerly the biofuel operations of Williams Cos. (nyse: WMB - news - people ), Aventine was picked off by a private equity arm of Morgan Stanley (nyse: MS - news - people ) for $75 million in 2003. It then issued $160 million of debt to pay its investors a $107 million dividend. In late 2005 Morgan sold the company to 144a equity buyers through a PIPO for $275 million, quintupling its investment in two and a half years. Pushed by investors hoping to flip at a profit, Aventine filed to go public soon after Morgan's exit, and raised $390 million in its mid-2006 offering. Great for PIPO investors, who recouped a 42% return (before banking fees) in six months.


Not so great for individual investors: Aventine's shares recently dropped to $10, 74% below their close on its first day of trading. Analysts see earnings falling 63% in 2007 and another 71% in 2008.
Even if you don't buy new issues, you can get singed by simply owning shares in a mutual fund. (or in an index ETF - n.r by $#*) Various T. Rowe Price and Fidelity funds hold baskets of 144a equities, although the lump-sum disclosures don't reveal what companies are in the basket.

What's that semi-public??? They want it private? Fine, let them keep it keep it private. But semiprivate is having a cake and eating it too. They can't do stuff that is illegal on regulated markets and after that dump the result on regualted markets so they can take the profits and us the losses.

Now going back to my question. Since the beginning of the year a lot of important people (including Bernanke when commenting the fall of Bear) have alluded to the risk posed by certain unspecified derivatives.

It is not about mortgage toxic waste (Bernanke said it in a piece about Bear), they are not auction rate securities, and now El -Erian says they are not CDS (he says: "structured finance elements", "more problematic than CDS" :eek:, something "we can't even model today":eek::eek::eek

I don't think they are commodities hedged debt intruments, because even at the most insane leverages it's hard to see how can such OTC paper can be "more problematic than CDS".

I believe is a new form of "inovative" structured finance, that got completely out of control and was used by Wall Street to plug the holes form the hosing debacle.

My question was: what exactly are these "innovative elements" and problematic are for the rest of us ?

Thanks in advance if you are able to help.

[tombat1913]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

The politicians won't actually "take away" your pension. However, most jurisdictions have pension programs (whether public or private) that are governed by some sort of favourable tax legislation (creating an incentive to save for retirement).

It is, therefore, well within the realm of possibility that the government can [and at some point likely will] "change the rules". And those changes will go beyond the typical "tinkering" that politicians just can't seem to avoid. My guess is it could come in the form of a requirement to hold certain levels of government debt instruments (Treasuries, etc) in every tax sheltered pension plan. If foreigners no longer wish to buy/hold sufficient quantities of US debt, then the citizens of the USA will be expected to do their duty and will be force marched down that road. If anything like this comes to pass it will be sold using patriotic lingo "for the good of the country", but it will represent defacto confiscation of pension savings by the government for its own purposes.

Exchange controls and other similar actions are also indications that things are getting truly desperate within the Beltway. Despite the moaning and groaning going on, things aren't yet that bad. Not even close.

Holy shiite! It's absolutely exhausting trying to stay ahead of these SOB's and still maintain some sense of "normalcy". It's like there's fewer and fewer places to hide. Well unless you have a damn bunker, but who has that? ;)

Thanks for the eye opener, I hadn't thought about that possibility.

[GRG55]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

...Number 3 is a variation of the "Fed cut first and furthest, and therefore everyone else has to play catch up" [cutting their administered rates]. Apparently the BoE and the ECB didn't hear that story this past week, as they both left rates unchanged, while the Swedes raised their rate. My guess is that if the US$ continues its romp, the Fed may use that as cover to cut the funds rate to goose the faltering stock market, and also to try to create some steepening of the [now flattening] yield curve, before the election.

Weren't US interest rates supposed to become more "competitive" against falling foreign Central Bank interest rates, thus supporting the US$ in a cyclical bull market?

Two year Treasuries are now below the Fed Fund Rate. Once again the Fed never leads, always follows. But having announced additional liquidity measures yesterday it may want to keep the rate cut powder dry a little longer.

...Early in New York, the 2-year's price was up 21/32 for a yield of 1.87 percent.

"Incredible: Treasuries are on a run: The flight to quality is back in vogue on the news surrounding a variety of financial firms over the weekend," said Kevin Flanagan, fixed income strategist for global wealth management with Morgan Stanley in Purchase, New York.

"The markets are pricing in a rate cut tomorrow. Do I rule out a rate cut tomorrow? No, but the Fed don't feel that another rate cut is the answer to the problem," Flanagan said.

Much depends on how U.S. stocks fare on Monday, analysts said. If equities fall into a sustained, steep selloff, that might tip the Fed's hand, some said...
Article [Reuters]...

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

The Fed Hammer Drill at work

This is becoming very predictable...

[Jim Nickerson]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

http://www.bloomberg.com/apps/news?p..._UM&refer=home

Dollar Ready for Second Wind When Dust Clears: Michael R. Sesit

Commentary by Michael R. Sesit

Sept. 19 (Bloomberg) -- Missed the recent dollar rally? Too bad; it was a whopper.

But don't sulk; you'll get another chance to gamble on a rising greenback in a few months. Until then, though, the most rewarding strategy will be to bet against the U.S. currency.

Three reasons: The dollar rally that began in mid-July was too explosive in too short a time. Two, it reflected more bad news about the rest of the world's economic fate than good news about the U.S. economy. Three, it was largely a short-covering rally in which speculators who had bet on a weaker dollar were forced to buy back the currency to cover losses or take their profits -- and there's a limit to how far shorts can be squeezed.

From its record low of $1.6038 to the euro on July 15, the U.S. currency soared 16 percent to $1.3882 by Sept. 11, before retreating to $1.44 yesterday. Over the same period, the trade- weighted dollar rallied 10 percent to its highest level since October 2007. The Bloomberg JP Morgan Asia Dollar Index, a trade- and liquidity-weighted measure of 10 Asian currencies against the U.S. dollar, fell to its lowest level since August 2007.

The British pound's 8.2 percent slump in August was its worst monthly decline against the dollar since the U.K. was forced to exit the European Exchange Rate Mechanism in 1992.

Still, the dollar rally was overdone. ``Dollar strength and euro weakness have proceeded too far, too fast,'' says David Abramson, head of foreign-exchange strategy at BCA Research Ltd. in Montreal. ``The U.S. economy is still adjusting to a deflationary shock led by the credit and housing crises and thus cannot withstand a rapid and lasting appreciation in its currency.''

Asia Concerns

Rather than signaling an improvement in U.S. economic fortunes, the dollar's stunning advance is the product of revelations that Europe's economy is weaker than anticipated, and concerns about slowing Asian growth. The dollar was also buoyed by equity outflows from emerging markets and oil funds -- especially repatriations by Americans who had increased their overseas investments to 20 percent of total assets from 8.7 percent in March 2003, according to Credit Suisse Group AG.

``I don't have any confidence that at least half of the knock-your-socks-off dollar rally is anything more than a massive deleveraging and risk-aversion trade,'' says David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut.

More evidence that the greenback is overstretched: It has fallen 3.6 percent against the euro since Sept. 11, while the price of oil has dropped 3.8 percent to about $97.

Shorter Rallies

Meanwhile, investors are increasingly unimpressed with U.S. government-orchestrated bailouts. Following the Federal Reserve- supported acquisition of Bear Stearns Cos. in mid-March, U.S. stocks enjoyed a two-month rally. The mid-July decision to extend credit to Fannie Mae and Freddie Mac resulted in a one-month advance, while the government's takeover of the two mortgage- finance companies on Sept. 7 produced a rally lasting just one day. The rally that followed this week's

nationalization of American International Group Inc. lasted just minutes.
``How does the U.S. economy hold up in a global slowdown with a broken banking system, falling home prices, elevated consumer indebtedness and declining corporate earnings?'' Gilmore asks.

The answer is: It doesn't. Particularly with the prospect that the American economy will slow in the second half of 2008 and that the unemployment rate may reach 8 percent.

Limited Potential

What's more, speculators are long on dollar-futures contracts and short on euros, pounds, Swiss francs and Canadian dollars, signaling that they have shifted from being extremely pessimistic on the greenback late last year to being overly optimistic. That's often a counterintuitive sign that the dollar's upside potential is limited.

How far the dollar might retreat is anyone's guess. Yet a decline to a range of $1.45 to $1.50 to the euro is easily plausible. So a short-term strategy of purchasing euros and selling dollars at current exchange rates may reward an investor with some nice pocket change.

Once the U.S. currency approaches the $1.50 level, it will be time to load up on dollars again in preparation for the second leg of the rally, which could see it strengthen to $1.25 to the euro. Here's why:

-- Dollar-bear markets historically tend to last seven to nine years, according to Credit Suisse. The current one is almost seven years old, suggesting that we have probably seen the bottom of the dollar.

Undervalued Dollar

-- Even after its stunning recent rally, the dollar is undervalued. Based on purchasing power parity, fair value is $1.15 to the euro, according to UBS AG and Credit Suisse. The two banks also put sterling's fair value at $1.60 and $1.53, respectively, versus a current exchange rate of $1.82.

-- The U.S. economy should recover before those of Europe and the U.K.

-- The Fed will begin raising interest rates while the European Central Bank and Bank of England lower them. The narrowing differential will increase the dollar's allure to international investors.

-- The U.S. current-account deficit, long a thorn in the dollar's side, has narrowed to 5 percent of gross domestic product from a peak of 7 percent in 2005. The weak dollar and falling oil prices will shrink it further. A stronger dollar will eventually hurt U.S. export growth, but that will take many months.

Until then, enjoy the mighty buck.

(Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Michael R. Sesit in Paris at at msesit@bloomberg.net
Last Updated: September 18, 2008 19:01 EDT

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Wow... I'm shocked!!!! Who could have thought of such unexpected developments ???

[GRG55]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

http://www.bloomberg.com/apps/news?p..._UM&refer=home

Dollar Ready for Second Wind When Dust Clears: Michael R. Sesit

Commentary by Michael R. Sesit



(Michael R. Sesit is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Michael R. Sesit in Paris at at msesit@bloomberg.net
Last Updated: September 18, 2008 19:01 EDT

"...The U.S. economy should recover before those of Europe and the U.K.

-- The Fed will begin raising interest rates while the European Central Bank and Bank of England lower them. The narrowing differential will increase the dollar's allure to international investors.

-- The U.S. current-account deficit, long a thorn in the dollar's side, has narrowed to 5 percent of gross domestic product from a peak of 7 percent in 2005. The weak dollar and falling oil prices will shrink it further. A stronger dollar will eventually hurt U.S. export growth, but that will take many months.

Until then, enjoy the mighty buck..."

"Mighty buck" huh...:rolleyes:

1. The US economy should consistently outperform Europe (and Japan) for demographic reasons, if nothing else.
2. The idea that the Fed will raise interest rates anytime soon is laughable.
3. It will not take many months to hurt US exports. There are signs in the latest manufacturing data already showing that the recent rise in the US$ is starting to bite.

[friendly_jacek]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Interesting thread. Too bad I saw it just now.
Turned out that Crooks was spot on with this dollar call for all the right reasons. Funny how, every ituliper who attacked him was full of BS.
This experience should be useful to filter out these itulipers that produce noise rather than useful input.

[c1ue]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

F_J,

It is still quite a bit early to tell if he was right.

The last thing he said was:

But I also think it will usher in a major long-term bull market for the U.S. dollar.

If this comes true, then I will bow down and praise Crooks.

But the 3 months of 'dollar strengthening' is still quite a long way from a long term bull market.

For one thing, the euro is still well under 1 to the dollar. Given that in 1999 the Euro was 1.19 to the dollar - it seems we're arguing disinflation vs. deflation again only with currency crosses.

[GRG55]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Interesting thread. Too bad I saw it just now.
Turned out that Crooks was spot on with this dollar call for all the right reasons. Funny how, every ituliper who attacked him was full of BS.
This experience should be useful to filter out these itulipers that produce noise rather than useful input.

So which of these three points in my post immediately above yours do you disagree with?

1. The US economy should consistently outperform Europe (and Japan) for demographic reasons, if nothing else.
2. The idea that the Fed will raise interest rates anytime soon is laughable.
3. It will not take many months to hurt US exports. There are signs in the latest manufacturing data already showing that the recent rise in the US$ is starting to bite.

[Tulpen]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

So far it appears he was right on the money!