The contrarian move of the moment

Miscellaneous Current Events
1

The consensus is that their will be a QE 3 (or at least a QE 2.5).

The contrarian move of the moment: Congress will cut spending and taxes to boost houses and the stock market; commodities will plummet. Banks will lend to home buyers; corporations will import their foreign profits and begin to buy up companies and other assets.

Eventually, commodities prices will go up anyway and we’re back to square one.

I think there will be another gold/silver shake out by the end of the year. I don’t really buy that the physical silver/gold is in high demand, given that premiums on bullion, et al., have gone down.

Any thoughts?

2

I think the Establishment has definitely been looking for an opportunity to give the commodities speculators a good smackdown. My theory is that the gold price has not risen as high as they were hoping (> $2K) before administering said smackdown. It’s hard to say whether they’ll QE3 or not. One thing is for sure, the central banks are still in firm control of the world economy and they will decide when to stop blowing the bubble and they’ll make sure it’s a surprise.

Marc Faber is extremely gloomy on the political front in the West but I think he might be underestimating the resourcefulness of the Establishment. While Medicare/SS are definitely on a crash course with reality, I believe that Obamacare was put in place to enable a political solution once the Medicare system actually begins to implode. Politically, nothing can be changed until the crisis actually begins, anyway, so the crisis has to come. The question is whether they’ve prepared for it and I believe they have. The same goes for SS. It’s obviously on a crash course with reality. But I believe that the private assets in 401(k) - especially - and IRA are vulnerable to a populist political solution whose narrative is something like “You’ve been getting tax-free growth for all these years at the expense of the American taxpayer, now it’s time for you to do your part and pitch in to solving this crisis” - a.k.a. nationalization of retirement assets. I’m not saying any of this is going to be good but I’m fairly certain the political/financial Establishment will be able to sell this as a Roosevelt-esque, deus ex machina salvation of the entire nation or the whole planet for that matter. Sure, people will be starving in the streets but at least they will be able to wait in line for their “free” healthcare and if they don’t starve to death before they turn 65 they will be able to get their “national pension”.

Clayton -

3

I don’t think Congress will cut spending OR reduce taxes. But commodities will still plummet because banks have no money to lend to speculators (Without the FED).

Eurodollars will stay Euro. Commodities may have another short term correction, but i agree and think they will rise again shortly afterwards. Probably when those Eurodollars get sold. (I think there are more E$'s than the FED leads on.)

Premiums on Gold and Silver are at what percent? 4-10%? I thought they’d been going up, I doubt that they would go down again unless there is serious drop in price (below $32 & $1400).

QE is our Perestroika and our walk into hyperinflation

EDIT: I don’t know if you are more or less optimistic than me, Clayton. If the central bankers want chaos they’ll get it. And I don’t think they excercise the kind of control over people that they think they do. We’ll have martial law and then they’ll pass some of the more extreme “reforms.”

SS will become The Island.

I also think that the Euro will crumble and that might cause one (or a few) of the EU countries to step up its war efforts. The US will move along with whoever need be.

4

Why not? If they cut spending by 5% (which is meaningless in the grand scheme of things), the market would probably react by selling commodities. Of course, this price swing is only temporary, but what matters is the market’s perception. Then, fundamentals will correct their perception by bringing prices up again.

There’s gotta be something that Congress can cut that no one cares about. Funding for the Iraq war; $100 billion over 5 years?

5

I think both parties are dumb enough to be stoking a default fire so they can try and reap the political benefits of blaming the other. and i think Clayton is right to a degree that the establishment will try and use it to further its agenda. My worry is a large war with a partial eurozone breakup will be that crisis. The banking establishment does NOT want to lose the Euro or its plans for the next 100 years will be much more problematic.

I don’t think cutting military spending will help our economy either. It is probably a significant amount of the 11 or 12% productive force we have. We can cut it, but it i don’t think it can increase or free up investment capital because it is all coming from the government (borrowing). They will likely raise taxes and raise the debt ceiling. Bringing those Eurodollars here will be the only way to increase investment capital in the private sector. So, what you are advocating is very optimistic to me and while it is possible (crosses finger) i doubt it.

Think of when Obama released the strategic oil reserves into the market. It took 30 minutes for the price to drop and then go right back up. That is how long the whole market took to readjust and plan for it, essentially negating its purpose and effect immediately/

6

The consensus is that their will be a QE 3 (or at least a QE 2.5).

Absolutely. How else will they pay the bills?

The contrarian move of the moment: Congress will cut spending

And the last time they did this was when? After WW2, 70 years ago? It’s a whole 'nother ball game now. The guys in Washington see the money they get as their due. After all, the spending is all either big bucks to themselves or their friends, or bribes to the voting class. None of that is expendable, they see it as cutting to the bone.

and taxes

Given that they need the money, how can they cut taxes? Only possible if they print more.

to boost houses and the stock market;

Houses are overpriced right now. Cutting spending and taxes, which brings the economy closer to its normal free market state, will only lead to housing prices approaching what they would in a free market, meaning down. But maybe you mean tax breaks that encourage house buying. Yes they might do that, like giving a corpse electric shocks that make it twitch for a while.

I don’t know about the stock market, but it seems to me that increasing spending, which creates inflation, is the way to go if you want to boost stock market prices.

commodities will plummet.

Why? The QEs are what made them go up, both as a result of general inflation they create, as well as the fear they generate of the dollar’s decline, and thus the mad rush for a safe haven in commodities.

Banks will lend to home buyers;

why aren’t they doing that right now? After all, they are sitting on plenty of money. The answer is simple, because the world has wised up and will not buy worthless subprime mortgages anymore. The banks don’t want to keep the loans that they know cannot be repaid. And that’s the only kind of people let to lend to. Everyone is broke; they cannot afford to pay for houses.

corporations will import their foreign profits and begin to buy up companies and other assets

Why aren’t they doing that right now?.

Eventually, commodities prices will go up anyway and we’re back to square one.

I think there will be another gold/silver shake out by the end of the year. I don’t really buy that the physical silver/gold is in high demand, given that premiums on bullion, et al., have gone down.

The demand for gold and silver is fear of holding useless dollars that the QEs are robbing of their purchasing power. I have no clue how the ups and downs will be short term, but over a few years gold and silver have nowhere to go but up, permanently. [Unless some responsible leadership stops printing money and raises interest rates, thus making the dollar attractive to hang onto, as opposed t gold and silver that pay no interest. But hold not thy breath].

7

In the investment world, this means that there will be higher asset prices. Thus, prices are going up because they believe there will be a QE 3 which raise prices, so what to be in before everyone else (but they are the everyone). The contrarian mindset is that QE 3 will be postponed for longer than what the non-contrarians believe it will. So, once the non-contrarians realize that QE 3 will be postponed to a time further then their time horizon, they will begin to sell, thus, driving down prices. At this point, the contrarian would have already been in cash, and will then buy those assets that being dumped.

Did you read the first part? “The contrarian move of the moment” It would be contrarian to think that Congress will cut spending and taxes.

That’s what this whole thread is about: Contrarian thinking.

I should have been clearer. Congress will cut specific taxes to boost houses and stocks. They could have even bigger tax credits for homebuyers. They could cut specific taxes that make it cheaper for corporations to import their foreign earnings. I not talking (specifically) about income tax and general capital gains.

There are plenty of people who can afford houses but can’t get loans. For example, someone paying $1500 in rent could afford a $1000 mortgage, but might not qualify for a loan with such a mortgage.

Taxes. Timing.

Yes, but this thread is about the short term.

8

It would be contrarian to think that Congress will cut spending and taxes.

That’s what this whole thread is about: Contrarian thinking.

That is not what Contrarian thinking means. For example, if everyone thinks that things drop to the floor when released from ones hand, then basing one investments on the assumption that things fly upwards when dropped, defying the law of gravity, is not Contrarian thinking, but folly.

Contrarian thinking is when one has good reason to believe that the herd is mistaken about something. So that in order for Contrarian thinking to get off the ground, it needs to first show convincing reason why the mob is wrong, then figure out what to do with that knowledge. For example, if a stock drops in price drastically [say to a penny from a hundred dollars] due to some misfortune a company suffers, that shows the herd thinks its value is a penny. A contrarian will think to himself, "It’s bad, but not that bad. Surely the stock is still worth ten dollars at least, for reasons X, Y and Z. So I’m going to buy it.

What’s missing in discussing cuts in spending and taxes is precisely some reasons X, Y and Z to imagine such a thing happening at all, much less being likely.

9

Like I said…

10

The Fed announced QE 2.5. Semi correct here.

They said they would.

They say they are cutting payroll taxes

Yup.

Nothing on housing. There’s been a lot of talk on MSM about getting those foregin profits back in the USA. Corporations are buying companies.

Not time for this yet.

Big time.

They are way up now. Premiums on 10OZ silver bars were $0.79 in 2008, not they are $2.69.

11

Personally I believe what a mainstream economist said: the Fed, the ECB and the IMF have already shot all their cartridges but two. The only ammunition remaining are Quantitative Easing on massive scale and nationalization of the banking industry. The latter may already be in motion as France is preparing an “extraordinary” aid package for their main banks: this is justified by the fact French banks as a whole are the number one private creditor of the Greek State. Germany may soon follow as their banking sector is the number one creditor of the Greek private sector. It remains to be seen what form this measure will take.

QE is more difficult to define: the dollar has been appreciating against the euro of late and as long as Europe will be in a state of institutional chaos it will continue to do so. In spite of all that’s been said the US is still one of the largest exporters in the world, selling everything from microprocessors to cotton. If exports begin to falter the US may follow the same pattern as Switzerland and start to inflate to keep their exports palatable against euro-priced goods, but that remains to be seen since most European exporters haven’t seen orders increase from foreign purchasers despite their weakening currency. Also inflation threatens one of the “sacred cows” of modern economy: ever since the CPI has begun to “heat up” at the beginning of 2011 consumers in Europe have started to buy less. In July consumers’ purchases dropped by a massive 2,4% over the same month of the previous year. With the present obsession of “increasing consumption” this is yet another problem for initiating an inflationary campaign.

Finally there’s the issue of China. Everybody is going to Beijing hat in hand these days. Chinese don’t buy bonds out of sheer generosity: they do it as part of their mechantilist politics to indirectly strengthen demand on their prime export markets (just like Japan). Problem is right now China is beginning to be cautious. They are starting to “cool down” their economy: interest rates have been hiked and subsidies to exporters have been cut. Inflation and the housing bubble are right now bigger concerns for the Chinese leadership than keep on helping spendthrift nations in the West. In spite of her apparent strengths China is still fragile: a week long strike by coal miners or immigrant workers in a single district may literally cripple the nation. The Chinese leadership wants to put its own house in order and given what we are seeing right now I cannot blame them.

12

That’s what The Bernank has written he would do in his academic papers.

13

The problem is Bernanke is not omnipotent. He just cannot do as he pleases: all his decisions have to be politically motivated and approved. His generation of economists (meaning school of thought, not age group) is losing credibility faster than a sinking ship takes water in, and not just among concerned citizens and investors. That same politcal world who turned to them for a quick solution is losing patience: politicians may be power-driven, corrupt etc but they do know an economic crisis of this scale costs votes and may even lead to civil unrest. They listened to them and it didn’t work. Of course the Bernanke generation will simply put forward the theory that “what we did was simply not enough: we need much more of the same”. But how long before the political world will begin listening to other advisors? When you have a rash and the doctor keep on telling you “No need to worry, just use more of this drug” and the rash just gets worse what do you do? You go to another doctor, you listen to another advisor. Of course you may end up in the clutches of a faith-healer or a charlatan, but you may also end up in the hands of a serious specialist who will diagnose an alergy or an autosomatic disease and advise a different course of action.