Saturday, October 11, 2008

Something Smells Fishy

Everything is being sold. It seems like belief hysteria.

It's not just the babies and the bathwater at this point. They're selling the bathtubs, bathmats, bathrobes, and the bathhouses too.

The long-term deflationists should want long-term treasuries. Nope. That was sold.

The long-term inflationists should want long-term silver. Nope. That was sold.

How can you have an environment that displeases both the long-term inflationists AND the long-term deflationists?

I have but one answer. Short-term thinking abounds.

The long-term risk takers should want long-term stocks. Nope. That was sold.

The long-term safety seekers should want long-term TIPS. Nope. That was sold.

How can you have an environment that displeases both the long-term risk takers AND the long-term safety seekers?

I have but one answer. Short-term thinking abounds.

Cash is currently king. Load up on 0.18% three-month treasury bills? What if we run out of trees to make the paper? No way! Stuff the mattresses! Bury it in the backyard! It's not worth taking the risk for a mere 0.18%! (I say somewhat tongue-in-cheek.)

I now resume my previous activity. I'm rolling in all this short-term paper sidelines money. It feels really, really good. I think I'm starting to fall in love with it. I just licked the $5 bill! And don't it feel good!! *heavy sarcasm*

Should the helicopters arrive and drop even more paper money I plan to marry even more of it! Oops. Did I say marry? I meant bury! Freudian slip there I guess. As long as I have the fiat paper in my hands I simply can't lose though! That seems to be the thinking right now.

That being said, kudos to those who are on the sidelines in cash right now. Well done. I'd suggest not overstaying the welcome too long though. Something smells extremely fishy to me, if only from a value standpoint. In my opinion, money is just paper these days and it is backed by a belief system centered on the very same government that got us into this mess in the first place.

I guess that means I'm "still" a long-term stagflationist. It is certainly not easy these days though.

As a side note, I asked my girlfriend Thursday night what she thought the market would do on Friday. She pointed her thumb down. I said that I could see it tank in the morning as a continuation of Thursday's crash. However, I could also see it rally by the end of the day and end positive. That would be an encouraging sign.

To me, what happened was the worst of all worlds though. It crashed as we both expected. It rallied as I expected (a good 200 points in the green even). Something really bad happened next though. It was sold off just before the close, yet again. That's going to give people yet another weekend to look at red closing numbers and think about self-fulfilling prophecies.

The market is now continually repeating the expected, caught in a Groundhog Day loop. That's very dangerous. Day in and day out it is establishing "crash" expectations. Momentum players must be loving it. I'm not one. That's not what I'd bet on. My long-term bet continues to be stagflation and I've chosen to place my bet as a long-term safety seeker. That would be most unexpected at this point. Stagflation's had the rug pulled out from under it, literally. (The rug was taken back by the bank in a foreclosure.)

Markets are constantly in a state of uncertainty and flux and money is make by discounting the obvious and betting on the unexpected. - George Soros


Anonymous said...

Confusion is good for the financial elite since they control the control's it allows them access to large open ended amounts of future taxpayer payments in the form of current treasury borrowing.
The ability to move large sums of money into various channels within the financial sector provides cover for a general looting of the public treasury. In order to create this looting sufficient fear has been created using both the MSM and political creatures paid for by the elite financial.
The reality is that the very wealthy are getting wacked hard, RE, corporate bonds, preferred shares are the bread and butter of the upper class and these financial equities are used for collateral in a variety of manner.

No place to hide , storms pass and we all get a better view of the damage and rebuild.

Anonymous said...

RE: short-term thinking abounds

I have to agree. For the past year, the housing bears have been critical of the Fed calling an insolvency problem amongst home owners and their enablers a liquidity problem. Even more they've disparaged addressing the solvency crisis with tools aimed at fixing a liquidity crisis.

Now in the stock and bond markets we are seeing what appears to be a liquidity crisis. Yet the bears are now showing themselves to be undiscerning as the bulls. The bears are not saying hey, we still gotta eat, heat our homes, drive to work, and Oh! half the country actually has reasonable price to income ratios for housing.

I worry about a Great Depression II as much as the next guy, but you also have to respect and play the odds. Whatever you think of Paulson, Bernake, and Bush, and believe me, it ain't much for myself, there's whole nations of people whose best interest IS to keep this thing afloat. So, after a 20-25% drop, I have a hard time thinking the smart bet is for another 20-25% drop.

I think just as the New York/DC folks were oblivious to how ridiculous housing was in S. Cal, Miami, Las Vegas, & Phoenix, now those places are oblivious to how moderate housing was in the heartland and PacNW. Those people are still buying stuff, paying their mortgages, and with energy prices dropping, doing things they find fun with their friends and family on evenings and weekends.

Anonymous said...

"Those people are still buying stuff, paying their mortgages, and with energy prices dropping, doing things they find fun with their friends and family on evenings and weekends."

Funny this is a global problem but somehow it has missed the fly over states and the PacNW? Gee just how did that happen..So it should be no problem to miss this whole credit deflation problem let those sore head Calif speculators and market bears take the heat or cold bath of margin calls.
Hey party on Allaf..

Anonymous said...

"So, after a 20-25% drop, I have a hard time thinking the smart bet is for another 20-25% drop."

You pays your money, you takes your chances baby. Get on in there and get you some of that.

Anonymous said...

Hey Mark the Japanese Yen was up of course as the hedgies blow up and the carry trades unwind that is what I would have expected. As far as gold and silver the paper market is getting creamed but just go try to buy the physical metal for that price:-)


Anonymous said...

Yes, the physical market is very tight.... I remain a long term stagflationist. This is going to be an inbflationary depression not a deflationary one.

They will print 5 K for each household next and mail ... there is already talk of a stimulus bill.

Anonymous said...

We are already in a deflation spiral as asset classes are falling faster then debt can be generated. The velocity of credit is the main vehicle of growth in the world financial markets not cash and with the crash of leveraged credit creation the banking system world wide has run out of its purpose which was creating debt. Inflation is 15 years away or maybe longer..

Anonymous said...


A couple of points regarding your sudden bout of optimism.

First, just ask any resident of New Orleans about "Katrina & the Waves". Just because the sun will come out tomorrow doesn't mean people will be walking on sunshine.

Second, something does smell fishy. IMO, it's all the rotten assets on bank balance sheets around the world. The sentences for those crimes haven't been served yet. Rest assured, somebody has to pay.

The following scene from Monty Python pretty much sums up the global banking system (and the fishy smell).

With a stench like that, I'm quite certain it doesn't taste like chicken either. It really doesn't matter though. Consider: sewer rat may taste like pumpkin pie, but I'll never know (Jules, Pulp Fiction, paraphrased).

BTW, I "still" think your tip call is sound. You're early, but not wrong IMO. Further, I "still" think investments in over-valued stocks, corporate bonds and real estate were/are wrong. Just how do you improve from historically high valuations AND historically low interest rates AND historically high debt burdens? Answer: SENSELESS MONEY CREATION.

I see tough times ahead.

Stagflationary Mark said...

Great commentary everyone.

I'll just hit the main point.

Good arguments for future deflation. Good arguments for future inflation. As long as I keep seeing good arguments for both, I'll sleep a bit better perhaps (somewhat being able to rule out short-term hyperinflation anyway). Let's call that optimism.

On the other hand... on a scale of 1 to 10 with 1 being it would be a horrible time to open a new restaurant and 10 being it would be a great time to open a new restaurant, I'd rate the current environment at about -74. Let's call that pessimism.

Local businesses feel effect of economic crisis

"It started in the middle of June when gas hit $4 a gallon," said Michael Scott, owner of Revivals Restaurant on Ridge Road in Perkasie. "People are coming in less and people that are coming in are eating more inexpensively or they're skipping dessert or they're skipping appetizers. Instead of having a New York strip, they're having a cheese steak."

My behavior permanently changed in 2004. Think pyrex and freezer. No amount of money printing is going to change it back. It's worse than that though. The more money they print, the less I'll eat out. That's how it has worked so far anyway.

Betty Graver, executive director for the Pennridge Chamber of Commerce, said that while the chamber has tried to help businesses remain proactive in the situation, it's largely uncharted territory.

What could a restaurant possibly do to be more proactive? Come over to my house, take the frozen meatloaf from the freezer, and then cook it for me in my own microwave?

"The banks don't even want to help you," Scott said.

That's just priceless.

"You don't want to overreact, but you don't want to underreact either," Graver said. "So you have to keep your eyes open."

Enter Sandman

Sleep with one eye open
Gripping your pillow tight

Exit light
Enter night
Take my hand
Off to never never land

Anonymous said...


A trillion ain't what it used to be.

Pretty soon we'll be using Avogadro's number - 6. X 10^23 +/- if memory serves. Hey brother, can you spare a mole?

If only it were so easy.

Stagflationary Mark said...


A trillion ain't what it used to be.

I think I'll post another musical tribute. Go figure!