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Will Bear Market Rally Continue or Stall Out?
Ford Celebrates, GM Scratches Its Head
Is Gold A Sucker's Bet?
Bill Miller on This Tough Market
There is no reason other American companies cannot emulate them. If Ford and GM can overcome the current liquidity crunch, I see no reason why they cannot compete effectively in the North American market, as they do in the rest of the world. I live in Europe and Ford offers one of the most interesting line up of cars here. I am even tempted to buy the new Mondeo.
All is not lost. The future is not predetermined. American can make a comeback. Just after we pay back our loans, bonds, credit cards, etc. either through savings and hard work or through inflation.
Bill Miller on This Tough Market
Gold's Finest Hour: How to Buy Now
I agree that central banks the world over will inflate away the debt-finance spending binge in developed economies. It is too expedient for politicians to inflate economies and economists seem to agree that deflation is worse than inflation.
This is good for gold. Even though one cannot consume gold as critics point out, the yellow metal as historically served as a store of value.
I also believe that the euro is not sustainable and this is good for gold since it means that there is not alternative reserve currency. For example, I live in Spain and believe the country is heading toward a protracted recession that includes deflating asset prices (housing, stocks) and an inflationary consumer prices given rising energy and food prices. The country will be akin to Argentina of the late 1990s: too much spending by the public sector crowding out the private sector, and with a currency tied to a then stronger dollar that dampened export-led growth. Without a depreciating currency, Spain simply will not be able to keep the economic chugging (even if in reality it is only running in place) and I wouldn't be suprised to see a return to 20+ unemployment in the next few years.
I also believe however that the world economy is heading for a long recession and a period of deflation, especially in the aging US and Europe, since peak oil and energy inflation will eventually destroy demand and slow down growth.
I don't think that gold is necessarily an attractive asset in a deflationary environment and would prefer to own zero coupon bonds as well as real estate or land (assuming this is not Armageddon, then all bets are off).
The more I think about it, the less pessimistic I become. The US has survived periods of rampant inflation as during the civil war and the 1970s oil shocks and periods of deflation and high unemployment as during the great depression. On the political side, it defeated both fascism and ultimately communism albeit at a great loss of human life.
The challenges of the future are no different and the US can overcome them as well. There is no reason US-based energy companies cannot lead the transition to the US of alternative energies in the face of peak oil. There is no reason that Silicon Valley cannot continue to be at the forefront of new information technologies. There is no reason, American automobile manufactures cannot make attractive, efficient vehicles that consumers want to buy (they do so in all other parts of the world except North America).
At the moment I am not long the dollar but once the current dust settles I will be because I believe the American political system offers and will continue to offer the best environment for motivated economic agents.
I recently wondered why Warren Buffett traveled to Germany, Spain, and Italy of all places to look for new investments. What happened to Asia? I suspect that he is believes demonstrated democratic states are more friendly to long term investors and maybe yet dubious as to China's commitment to human and property rights.
Historic Financial Collapse Underway?
He recommends zero coupon bonds as 50% of a portfolio under that scenario.
He also recommends a 20% weighting in energy stocks (oil services and alternative energy companies mostly) in case that opposite happens -- high inflation.
The more I read, the less I seem to know about the biggest questions out there that will impact our collective future:
1. Inflation or deflation?
2. The US as world economic engine still or decoupling? Can the world economy (Asia, Europe, Latin American, Africa and the Middle East) operate normally with a vastly devalued US dollar and enfeebled US economy? I suspect not but am not sure, the Chinese know how to make a lot of things now...
3. How much can we really expect in additional losses from US financial institutions?
I am natural inclined to be pessimism about the economy but even I am beginning to feel like that pessimism is overshooting.
The most likely scenario for the world economy is that we all muddle through as we adjust to a difficult period of deleveraging and a decline in aggregate demand in developed countries (due to lower birth rates) and an increase in aggregate demand in developing countries (due to higher birth rates and a increase in total factor productivity).
Is There Any Hope for the Big Three Auto Makers?
Headwinds for Gold?
Apart from the ECB's stance duly noted on Thursday by the press, I have also read that Brazil and several other emerging markets will begin tightening.
A recent article in The Economist noted that emerging markets with dollar pegs will have a hard time tightening however if the US does not. They are averse to allowing exchange rates to rise since this might exacerbate inflation in the short run (from higher capital inflows). The Economist argued that so long as emerging markets failed to raise interest rates or depeg and allow exchange rates to appreciate, they would experience double digit inflation and commodity prices would remain high.
If this is true, does not the case for gold rests less with the European Union's monetary policy and more with the dollar and other currencies pegged to the dollar? As long as real interest rates are negative in the US and emerging markets then gold will go higher.
The key to commodity prices and when to sell seems to be real interest rate levels in the US and emerging markets.
Incidentally, I wouldn't mind being in euros either if the EU lifts rates. However, the ECB is going to have hard time acting alone. The ECB is in a bind: it needs a coordinated policy with other central banks to raise rates and fight inflation, but it also does not want to exacerbate economic conditions in some of its weaker countries, notably Spain, Portugal and Italy. There is already social unrest in Spain with several strikes by fishermen and truckers scheduled this week to protest the high price of oil. Higher interest rates will exacerbate the average Spanish household's ability to meet its monthly mortgage payment.